A Nuanced Tone

September 4, 2015

Last week, many Fed officials gathered at the Kansas City Fed’s Jackson Hole Symposium to give their take on the need to make or delay the initial rate hike. Vice Chairman Stanley Fisher carried the Fed’s central message – it is still too early to decide about a September hike. Before he spoke, several speakers reiterated their view it was time to raise rates. Meanwhile, New York President Dudley had provided a financial markets-oriented indication that a September hike was “less compelling.” Fisher was more demure, noting simply that they had three weeks to decide. We read this as confirming that the Fed has no plan in mind for a series of hikes – or they would want to get started. However, they may want to move away from zero to see what happens, as host and Kansas City President Esther George advocates.

Assuming the initial move is primarily a test for further information; the Fed needs to be particularly careful about appearing to react to either international events of domestic financial market volatility. The first is beyond their purview (dollar policy belongs to the Treasury, when it decides to do anything) and any delay blamed on the second might cause more volatility. The attribution of either action or inaction to anything but the labor market only muddies their well-developed message. The safe path is to wait and see how financial markets settle and use the survey of August employment conditions (which was taken before the sell-off) as the rationale for whichever course they choose.

Our own reading of the economy leaves us agnostic on an initial hike in September, but more certain that only one rate increase will come in 2015.


The preceding is an abridged version of a commentary for McVean Trading and Investments, LLC and has been reposted here with permission of the author.

The ideas and opinions expressed in this blog are those of the author, and they should not be perceived as investment advice or as any other kind of advice.

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