Cunningham on Fed; Lockhart on Rates
Federated Investors' CIO, Global Money Markets, Deborah Cunningham, released her latest "Month in Cash" column entitled, "Is the Fed willing to overlook soft patch in push for liftoff?." She writes, "The Federal Reserve has always operated with a good measure of mystery. Even former Chairman Ben Bernanke's implementation of press conferences and the vast amount of Fed governor speeches have shed little light on what the Fed will actually do in any given Federal Open Market Committee (FOMC) meeting. Lately, however, it has been more ambiguous and taking more seemingly conflicting positions than typical. On the one hand, comments by Fed officials, including Chair Janet Yellen, and changes in statement language seem to confirm a hike is likely in 2015, and maybe sooner rather than later. If the policymakers aren't "impatient," they at least often sound eager to get the process underway. That would seem to point to a September date for liftoff. But on the other hand, the Fed has expressed that any rate move will be data dependent, and economic data has not been stellar as of late.... There are many things that could deter them from raising rates in the near term due to this soft patch." She continues, "And it is important to keep in mind that the next stage of Fed maneuvers is indeed not "tightening" but "normalization." Traditionally what we think of as tightening is when the Fed starts raising interest rates. What Yellen keeps emphasizing, and what the market doesn't always get, is we have to withdraw from ultra-accommodative monetary policy before a rise in rates will have the same impact as tightening has had in the past. If the federal funds rate increased to a range around even 1.25%, it is probably still easy money. It is important to distinguish between normalizing in an increasing rate environment and tightening in an increasing rate environment." In related news, CNBC writes "Fed's Lockhart sticks with June to September liftoff." The article says, "Atlanta Federal Reserve bank president Dennis Lockhart said on Wednesday that the United States remains on track for a likely interest rate hike in the June to September period, with a weak first quarter likely to give way to stronger growth. "The weakness of the first quarter got my attention. I still believe the factors are transitory," Lockhart told reporters at a monetary policy conference here. "We will see a pick-up." Fed officials say they remain convinced that the economy has enough underlying strength for the recovery to continue, and that cheap oil will ultimately be a boon to the economy, felt through increased consumer spending and higher company profits."
