Futures Spike After Bill Dudley Urges "Cautious Approach" As "Balance Of Risks Tilted To Downside"

In a week overflowing with Fed speakers, moments ago NY Fed's Bill Dudley - who recently flipped from hawkish to dovish once again - took the podium in Bridgeport Connecticut to lay out his latest thoughts.  Here is a summary of what he said in a speech titled "The National and Local Economic Outlook: An Update", courtesy of Bloomberg

  • Caution is called for because of Fed’s limited ability to reduce policy rate, Federal Reserve Bank of New York President William Dudley says, Dudley comments in text of speech in Bridgeport, Conn.
  • Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted slightly to the downside
  • Fed can use forward guidance, balance-sheet policies to provide more accommodation if warranted
  • While recent data show “some firming” of inflation expectations, “there is still cause for concern” because many measures still quite low
  • "The recent rise in inflation and in measures of inflation expectations have increased my confidence around this outlook compared to earlier in the year, but it is still possible that the return of inflation to our objective could take longer than I anticipate."
  • “There is significant uncertainty about economic growth prospects abroad and how this will affect the U.S. economic outlook”
  • Despite recent financial-market volatility and economic data, “recent developments have not led me to make a fundamental change in my outlook for the U.S. economy”
  • Expects real GDP growth of about 2% in 2016, above potential; jobless rate likely to drop to around 4.75%
  • Several sectors showing signs of softness, including consumer spending, home sales, business investment
  • Labor market has remained healthy, but long-term unemployment still higher than prior cyclical peak in 2003
  • “Measures of aggregate wage growth have remained quite subdued, which suggests there is still some slack in the labor market”

On this latest cautious pessimism about the US economy futures naturally spike to intraday highs.


That said, we can't blame him for being cautious. One look at the following chart from @Not_Jim_Cramer and you would be too. In fact, you may even ask what was the Fed thinking when it hiked rates last month.