Just in case there was some confusion how to read today's blistering jobs data, here comes NY Fed's head and former Goldmanite with the explanation:
- DUDLEY SAYS FED STILL LIKELY TO START RAISING RATES THIS YEAR
Some of his other comments via Bloomberg (his full speech can be found here [6])
- “The appropriate stance of monetary policy will be influenced by how financial market conditions respond to the Federal Reserve’s actions,” Dudley said in text of speech in Minneapolis
- If conditions tighten sharply, Fed is likely to proceed more slowly; officials would move more quickly under opposite scenario
- “We will adjust the policy stance to support the financial market conditions that we deem are most consistent with our employment and inflation objectives”
- Level of real short-term rates consistent with neutral policy seems “considerably lower” than in past, likely to remain lower than normal in future
- Large balance sheet shouldn’t hurt Fed’s ability to lift fed funds rate, yet liftoff “may not go so smoothly in terms of the impact on financial asset prices”
- Timing of any FOMC decision will still be based on incoming data
- Growth should pick up “somewhat” for rest of yr; uncertainty remains on whether it will lead to further labor mkt improvement
- Some forces restraining growth are likely to fade
- There’s “plenty of room” for more gains in residential investment
- Consumer spending should grow if households become more confident about their finances
- 2Q rebound appears to be “relatively muted”
- 1Q contraction came from “mix of factors”; “seasonal adjustment issues” probably played some role
- Today’s payroll data for May shows continued progress toward full employment; “there is still some ways to go”
- Unclear why productivity growth has slowed; its future path will be important for employment outlook
- Uncertain whether there will be more gains in labor mkt this yr
- More confident medium-term inflation will return to 2%; resource utilization should increase; impacts of lower energy prices, firmer USD have stabilized or partially reversed
- Downside risk is that wage growth remains subdued; trade sector looks likely to be drag for rest of yr; USD is still more than 10% higher than yr ago
- Would support start of policy normalization this yr if labor mkt continues to improve, inflation expectations stay well- anchored
- Sees “smooth” liftoff in terms of Fed’s ability to push fed funds higher; financial mkt reaction less clear
- Fed could alter level of IOER, ON/RRP and/or spread between two as needed to move fed funds rate into desired range
- Likely to be “some turbulence” in mkts at onset of normalization
- Any confidence band around FOMC’s dots would probably be “very wide” given uncertainty in outlook, “loose” link between fed funds rate and mkt conditions
As for the market:
- Likely to be “some turbulence” in markets at onset of normalization
Aka, the same warnings as Mario Draghi gave on Wednesday sending Bunds into a tailspin.
His comments initially pushed futures to the lowest since this morning's furious ramp to green...
[7]
... but since then ES has managed to rebound modestly and is now unchanged since the speech because it is clear that the Fed is just as clueless as everyone else what to do.
