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Takeaway: Conflicted NY Fed President debates himself over "whether the time is right to begin to normalize monetary policy."

You may have noticed this headline from the Wall Street Journal today.


That’s odd.

As we recall, New York Federal Reserve President Bill Dudley was the same central planner who rocked markets last week when he mentioned that a December rate hike was a “live possibility.”

In today’s speech, Dudley was doing the same old song and dance, blaming the uncertainty surrounding a December rate hike on the damn data (as we affectionately refer to it here at Hedgeye).

Rate Hike 'Live Possibility'? NY Fed Head Can't Make Up His Mind - Fed cartoon 04.30.2015

Most interesting was Dudley’s reading of the “few issues” that could “still cloud the [economic] outlook.”

Amusingly, his take on the data acknowledged many of the concerns our Macro team at Hedgeye has been highlighting for a long time now, including recent “softness” in 3Q GDP, the strengthening dollar and the slowing manufacturing sector:

“With respect to the economic growth outlook, the softness in third-quarter real GDP—which according to its initial estimate rose at only a 1.5 percent annualized pace—and the weakness of the manufacturing sector have raised concerns that the U.S. economy may be losing some forward momentum. 


Sharp reductions in oil and gas drilling activity and a loss of international competitiveness associated with the dollar’s appreciation over the past year have restrained factory output. Judging from historical experience, the impact of the dollar’s recent strength has the potential to be protracted, so that the trade sector probably will continue to be a drag on growth in 2016.  Thus, the manufacturing sector is likely to continue to lag behind the rest of economy.”

Another key Hedgeye Macro theme is #Deflation. Funny enough, during his speech, Dudley mentioned “inflation” 47 times and begrudgingly admitted that it was running “well below” the Fed’s 2% objective.

Dudley again:

"... [that] the economy is growing only slightly at an above-trend pace and inflation is too low relative to our objectives, suggests that we need to think carefully whether the time is right to begin to normalize monetary policy."

This after San Francisco Fed President John Williams told USA Today just this week that there was a "very strong case" for a rate hike this year.


While we wait for the Fed to make up their mind and interpret the data, here's an important reminder from Hedgeye CEO Keith McCullough.

“The Fed’s ‘forecast’ is wrong 70% of the time. They are the new market risk.”

Here's more From mccullough on the fed risk...