Goldman Sachs On The FOMC & Yellen’s Upcoming Speech At Jackson Hole

The key development in Federal Reserve communication last week was a wide-ranging interview with FRBNY President Dudley. Two quotes in particular stood out to us. First, Dudley suggested that so far he has not changed his “dot”; if things go as planned then he “would be in favor of doing another rate hike this year.”

Dudley put the onus for that to happen squarely on inflation by saying “the next 4 to 6 months I think are going to be important” to see if the Fed is right that recent weakness is transitory or “there’s something more fundamental going on.” This is the third year in a row that Dudley has given a substantive mid-August update, and it has generally been a good policy bellwether. His remarks this week were close to the thinking of our US Economics Team and we have left our subjective odds for another rate hike this year unchanged at 55%.

On Jackson Hole:

The main events start Friday morning at 10am with the keynote speech, which we now know will be delivered by Fed Chair Yellen. So far, the Fed has only said that her speech will be on the subject of “Financial Stability.” It is obviously hard to forecast a freeform speech, so we will just make a few logistical points.

- First, since it is the keynote speech for the conference, the content of the speech should be closely tied to the conference theme of Fostering a Dynamic Global Economy.

- Second, the subject of the speech alone is not a sufficient indicator for whether or not she will comment on current policy. Last year, the subject of Yellen’s speech was listed as “The Federal Reserve’s Monetary Policy Toolkit” but she decided to include an opening section on the “Current Economic Situation and Outlook” that could just as well have been omitted.

- Third, keep in mind that this is an academic setting above all else. Although Yellen certainly knows the weight that her words carry, the Jackson Hole keynote tends to be 10-15 pages long and can include multiple pages of academic references and footnotes; this is not the kind of thing that is easily distilled into a few news headlines. Last year’s speech, with its explicit section on current policy, was probably an exception to that rule.

22 Aug 2017 - 11:32- Fixed IncomeBank Speaker- Source: Goldman Sachs

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