QE will be terminated at the end of this month. In and of itself, this shouldn’t be a problem for the stock market, in my opinion. However, its termination sets the stage for rate hikes by the Fed next year.
FRB-NY President William Dudley spoke on Tuesday. In his prepared remarks, he said, “What I can say with greater certainty is that there still is a significant underutilization of labor market resources.” He is among the leading doves on the FOMC and tends to have the exact same views about monetary policy as Fed Chair Janet Yellen.
This implies that the FOMC will be in no rush to raise interest rates next year, and will do so very gradually. Nevertheless, Dudley added, “The [FOMC’s] consensus view is that lift-off will take place around the middle of next year. That seems like a reasonable view to me. But, again, it is just a forecast.” Dudley did mention the stronger dollar, but toned down his concern about it, which he had expressed at a 9/24 Bloomberg conference. For now, he sees it as “limiting the upside risk” of better-than-expected economic growth and higher-than-expected inflation.
Dudley mentioned that inflationary expectations remain “well anchored” despite the recent drop in the yield spread between the 10-year Treasury and comparable TIPS recently. He did not say, as he had at the 9/24 conference, that the strong dollar might push the core PCED inflation further below the Fed’s 2% target as import price inflation diminished.
FRB-NY President William Dudley spoke on Tuesday. In his prepared remarks, he said, “What I can say with greater certainty is that there still is a significant underutilization of labor market resources.” He is among the leading doves on the FOMC and tends to have the exact same views about monetary policy as Fed Chair Janet Yellen.
This implies that the FOMC will be in no rush to raise interest rates next year, and will do so very gradually. Nevertheless, Dudley added, “The [FOMC’s] consensus view is that lift-off will take place around the middle of next year. That seems like a reasonable view to me. But, again, it is just a forecast.” Dudley did mention the stronger dollar, but toned down his concern about it, which he had expressed at a 9/24 Bloomberg conference. For now, he sees it as “limiting the upside risk” of better-than-expected economic growth and higher-than-expected inflation.
Dudley mentioned that inflationary expectations remain “well anchored” despite the recent drop in the yield spread between the 10-year Treasury and comparable TIPS recently. He did not say, as he had at the 9/24 conference, that the strong dollar might push the core PCED inflation further below the Fed’s 2% target as import price inflation diminished.
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