Dallas Fed President Robert Kaplan just took his dovishness to a whole new level on Thursday when he set the Fed's "new message" - in the words of Nomura's Charlie McElligott - saying during a Bloomberg TV interview that he believes the Fed should hold off on its next interest-rate hike until the second half of 2019 - echoing the house view from Goldman Sachs, which now sees just 1.2 (yes, one point two) rate hikes in 2019.
Asked whether the year-end volatility in markets had impacted his view on monetary policy following the Fed's not-quite-dovish-enough policy outlook from the December meeting, Kaplan said that the Fed must be "very vigilant" about how its QE unwind is impacting markets and the economy...and be ready to "make adjustments" to its plans when needed.
"This is unprecedented. There's no textbook for exiting quantitative easing...we should be very vigilant and be very open-minded to making adjustments in this balance sheet runoff if we need to."
And in a comment that we imagine delighted President Trump, Kaplan repudiated Jerome Powell's infamous comment that the Fed's balance sheet unwind would be on "autopilot", saying he would be open to making adjustments in the pace or size of the roll-off of the Treasurys and mortgage bonds on the central bank's balance sheet.
"I don't want to speculate...there are a number of things we could do in terms of caps and the pacing..."
Asked for his view about what year-end volatility explosion says about the underlying global economy, Kaplan cited three issues that have given him reason for pause: slowing global growth - adding that the US likely won't be immune to a slowdown in China and elsewhere - weakness in interest-rate sensitive industries, and notably tighter financial conditions.
"Let me answer it this way: There are three big issues that I see reflected in the markets tah are consistent with what I'm seeing in the economy: Global growth decelerating...interest-sensitive industries are showing weakness...and financial conditions have tightened and credit spreads have widened. Those three issues are affecting the markets but they're also affecting my thinking on monetary policy. It's going to take some time to see the depth and breadth of those three issues."
Because of all this, if Powell had his druthers, the Fed wouldn't hike rates again until the second half of 2019.
"My own view is we shouldn't take any further action on interest rates until these issues are resolved for better or for worse...so I would be an advocate of taking no action during the first couple of quarters of this year...we should be patient and give some time for this economy and watch how this situation unfolds."
While Kaplan isn't a voting FOMC member this year, he still helps set the tone, and the mood, and gets to weigh in on the committee's decisions.
But in an interesting twist that's indicative of how guarded the market sentiment is right now, McElligott pointed out that even with Kaplan's super-dovish comments and the risk-off move in stocks, bonds haven't rallied much on Thursday.
Then again, there's reason to take Kaplan's remarks with a grain of salt.
The Fed never sees it coming.— Sven Henrich (@NorthmanTrader) January 3, 2019
Crude was $74+ & $SPX at 2900+ when this chatter came out.
3 months later: let's stop everything.
It's almost as if market price trajectory drives Fed policy. 🤔 pic.twitter.com/x4SmsNcSbH
Watch clips from the interview with Kaplan below: