Confusion.
That's probably the best way to sum up market uncertainty surrounding future Fed rate hikes. Regional Fed presidents continue talking out of both sides of their mouth, under the guise of "data dependence." Investors? They're left scratching their heads.
After last Friday's GDP implosion (1.2% for 2Q16 ... half what Wall Street economists predicted), market implied rate hike probabilities for September and November FOMC meetings dipped below 20%. Meanwhile, Fed governors are out there chomping at the bit to get their names in print ... trying to convince investors that the next three meetings of 2016 are "live." Okay.
Newsflash. The U.S. economy is slowing.
Take a look below at some recent headscratching headlines courtesy of our omnipotent Fed. You can't make this stuff up.
Here's the opening line from CNBC's story:
"The market shouldn't be ruling out the possibility the Federal Reserve will hike interest rates again this year, William Dudley, president of the New York Fed, said on Monday."
Now cue the Reuters story (again the opening line):
"The Federal Reserve should be cautious on interest rate increases due to lingering risks to the U.S. economy, one of its most influential policymakers said on Monday, appearing to signal the chance of a hike by the end of the year was fading."
(NO WORDS...)
BUT wait. it gets worse.
Enter Dallas Fed head Robert Kaplan with his two cents.
Holy smokes.
All of this is seemingly innocuous to a casual observer. But it underscores the frenetic nature of Fed following these days. Here's a brief recap of the year-to-date Fed policy pivots which is either disillusioning or highly frustrating (perhaps both):
- Hawkish in December
- Dovish in March
- Hawkish in May
- Dovish in June
- Hawkish in July
These Fed heads put even the most wish-washy of flip flopping politicians to shame...
What does it all mean?
Here's a mouthful: Following the frantic Fed's fork-tongued forecasts is a fool's errand.
