FOMC could raise rates as soon as next month’s meeting – BNZ

Jason Wong, Currency Strategist at BNZ, suggests that the comments by the Fed’s Dudley and Lockhart overnight continued to flag the risk of Fed tightening in the not too distant future and they provided some boost to the USD but the damage had already been done.

Key Quotes

“Weaker than expected US core CPI data added to the USD’s woes, although industrial production was stronger than expected. The US TWI (major currency) is down a chunky 0.8% to reach its lowest level in eight weeks.

The US rates market responded more to New York Fed President Dudley’s comments in an interview than the softer-than-expected core CPI data. Dudley commented that it is possible the FOMC could raise rates as soon as next month’s meeting. “We’re edging closer towards the point in time where it will be appropriate…the market is complacent about the need for gradually snugging up short term interest rates over the next year or so”. Those dovish comments were offset a little by his comments on the longer term view when he said that the Fed “…don’t have a lot of monetary policy tightenings to actually do over time”, a nod to the view that in the new world the natural real policy rate had probably diminished, along the lines that Williams expressed yesterday.

Atlanta Fed President Lockhart (non-voter) said that at least one increase of the policy rate could be appropriate this year.”