Fed: Vice Chair Fischer pressing the case for another hike – AGFXC

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the higher rates response on the day on Friday owes more to how Vice Chair Fischer interpreted Yellen’s speech.

Key Quotes

“Fischer was asked on CNBC whether people should “be on the edge of our seat” for a rate hike in September, and for more than one policy tightening before year end.  He answered: “I think what the Chair said today was consistent with answering yes to both of your questions, but these are not things we know until we see the data.”

This appeared to warn us that a hike in September is on the table, and another in December is possible.  However, it is very hard to assess how Fischer interpreted “on the edge of your seat” and he continued to note it depends on the data.

In the past, Fischer has been more inclined than his peers to say we can’t give clear guidance and it depends in the data.   So he may have meant we cannot dismiss the possibility of a hike in September or two this year as negligible and we will respond to the data.

Fischer did note that jobs growth over the last three months (averaging 190K) were strong, and the Fed will have another payrolls report next week to consider ahead of the 21 September.  It does appear that he will be siding with the case for another hike if this data were consistent with this stronger trend, especially if there were some supporting elements in the report suggesting that the labor market had tightened.

However, as to the prospect of two hikes this year?  This would seem a stretch given every Fed member is emphasizing a gradual and cautious policy approach.  It is hard to imagine this would occur.”