By Doug Steel
The ECB’s panel discussion consisting of Yellen, Draghi, Kuroda and Carney made for plenty of headlines supporting forward guidance as a policy tool but delivered little in the way of, well, forward guidance, on the policy outlook.
Interestingly, Yellen did express some frustration over her colleagues public comments ahead of FOMC meetings. ‘From a communication standpoint it is challenging because individual members of the committee are able to give lots of speeches’.
This is interesting in the context of the RBNZ movement towards a committee based model, possibly with external members. It is also interesting in the context that Fed chair nominee Jerome Powell as previously expressed shortcomings in the Fed’s communication, including the use of the interest rate ‘dot plot’. Watch for more discussion on this next year.
US 10-year Treasury yields again tested above 2.40% yesterday, but could not sustain the move. Yields again tried to push upwards on the higher headline US PPI data, but pulled back as the details were digested, and as oil prices fell, to currently sit round 2.375%. Meanwhile, US 2-year Treasury yields have held their recent gains seeing further flattening of the US curve.
The Fed’s Bullard (non-voter this year) overnight reiterated he sees no need to raise interest rates. Meanwhile, yesterday the Fed’s Harker had a December hike ‘lightly pencilled in’. There’s the communication challenge.
A lot of focus will be on the US CPI data overnight. We think the Fed will hike in December, with the CPI data likely having more influence on what follows next year.
Some attention will be given to AU wage data in the local time zone.
The local rates market was little changed yesterday, with swap yields marginally lower and bond yields marginally higher. NZ 2-year swap closed slightly lower at 2.195% while NZ 5-year swap was unchanged at 2.71%.
Daily swap rates
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Doug Steel is a senior economist at BNZ Markets. All its research is available here.
1 Comments
The Fed has a - er - Federated structure, well explained here: http://www.slate.com/blogs/moneybox/2013/10/10/_20_fed_questions_everyt…
So Yellen has zero influence over the pronouncements of the regional Feds: the entire US system is predicated on power (reluctantly) being handed Up the chain, not dribbled down from the top. Very unfamiliar to us, mired as we are in the Westminster tradition....
The money shot:
...the Federal Reserve System is made up of two parts. One is the Board of Governors in DC—a chairman, a vice chair, five other governors. The other is the twelve Federal Reserve Banks—San Francisco, Dallas, Minneapolis, Chicago, Kansas City, St Louis, Cleveland, Atlanta, Richmond, Philadelphia, New York, and Boston. The FOMC consists of the seven governors, the President of the New York Federal Reserve, and then four regional bank presidents. Cleveland and Chicago each serve every other year, while the other nine each serve one year out of three.
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