Five Fed Speakers offer little insight on next move

Fed watchers heard from four members of the Federal Reserve but gain little insight to what would be the next move.  Many market participants are waiting to see the Fed deliver a big shift that will have them join the bond markets in signaling a rate cut will be in the near future.  Federal Reserve Vice Chairman Richard Clarida noted that unemployment in the US may be able to decline further without triggering excessive inflation.  The unemployment rate in April dropped to 3.6%, a 49-year low and the strength of the labor market has made it difficult for the Fed to offer further accommodation.

The Fed’s Bullard, a dove and voter, stated he would consider pushing for a rate cut if core inflation were persistently low.  The Fed’s preferred index for inflation was at 1.6% for the year ending in March, just below the Fed’s 2% target.

Federal Reserve Bank of Atlanta President Raphael Bostic provided no new insights, noting that the scales for the next move, a hike or a cut, are equally likely.  He added there are a lot of risks out there and if the economy weakens, a rate cut might be appropriate.

Federal Reserve Bank of Philadelphia President Patrick Harker advocated against policy rules being followed robotically.  He is not a voter this year and did not have much to say on the economy or outlook on policy.

The Fed’s Williams, a voter, spoke at an event in New York.  He added the Fed wants to sustain this expansion.

The bond markets are still pricing in a rate cut as the next move and as this trade war drags on the data-dependent Fed will have an easy choice in cutting rates.  The question is not will they deliver a shift, but when.  Fed Powell speaks tonight and later this week we will get the release of the FOMC meeting minutes.

Treasury yields advance slightly ahead of Powell’s comments and the FOMC minutes.  The 10-year yield is up 2.3 basis points to 2.414%

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