Yahoo Finance Why market watchers are obsessing over the Fed's Lael Brainard right now
Monday comes with what may be the year’s most closely watched speech from a member of the Federal Reserve Board who is not Chair Janet Yellen.
At 1:15 p.m. ET, Fed Governor Lael Brainard will speak on the economic outlook and monetary policy at the Chicago Council on Global Affairs. While the event had reportedly been in the planning phase for some time, it was only on Thursday that the organization revealed when she would speak. This has led some market watchers to speculate that Brainard, who is a known dove, may offer a hawkish tone, which could in turn be seen as a sign the Fed will hike rates at its Sept. 20-21 Federal Open Market Committee (FOMC) meeting. The Fed last raised rates in December 2015.
“It could be a coincidence, but it could also be an important opportunity for the Fed to raise market expectations and give the FOMC more room to maneuver at the September meeting,” Deutsche Bank Chief Economist Peter Hooper said on Thursday. “Certainly a good case can be made for moving ‘soon’ (in September) given: (1) payroll growth in recent months now averaging in excess of where the Fed wants to see it, (2) generally improving signs for consumer spending and overall GDP growth (the latest ISM notwithstanding), and (3) relatively favorable financial conditions.”
A rate hike in September would arguably be in line with the language Yellen offered at last month’s Kansas City Fed Economic Policy Symposium in Jackson Hole, Wyoming.
“Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said.
Hooper sees a 50% chance of the Fed hiking rates on Sept. 21. A handful of economists believe the odds are higher.
“We will look to [Brainard’s] speech in Chicago on Monday for a signal on the likelihood of a September hike,” Barclays’ Michael Gapen said. “Nonetheless, given the tenor of recent FOMC communication, we continue to see September as the most likely time of the next rate hike.”
To be clear, the consensus is that the Fed won’t hike at its September meeting, and therefore Brainard won’t be saying anything to suggest otherwise. Regardless, every trader and market economist will be listening.
“Brainard, on Monday will be very closely watched,” said Art Cashin, UBS Financial Services’ director of NYSE floor operations.
“Brainard has been one of the most dovish voters on the committee, arguing for prudent risk management and the benefits of waiting before hiking rates,” Credit Suisse’s James Sweeney said. “Although we expect her to stick with caution, any hawkish rhetoric would warrant market attention.”
The event will be streamed live at TheChicagoCouncil.org. Stay tuned.
–
Sam Ro is managing editor at Yahoo Finance.
Read more:
Deutsche Bank: ‘An 8-10% S&P decline looms’
Morgan Stanley: ‘We think the US stock market is going higher’
Goldman Sachs boldly strays from the herd with a contrarian Fed call
Summer’s over: Markets brace for the fall
