Investing.com – Markets looked ahead Friday to a speech from Federal Reserve chair Janet Yellen at the Jackson Hole Economic Symposium in Wyoming to see if the U.S. central bank chief will offer further clues as to the outlook for the removal of accommodative policy and, while little new information is expected, the speech may not turn out to be as “boring” as intended.
The 2017 symposium will focus on “Fostering a Dynamic Global Economy” and Yellen is scheduled to give a speech on “Financial Stability” at 10:00AM ET (14:00GMT).
With higher hopes for excitement placed on a later appearance of European Central Bank president Mario Draghi, Danske Bank rules out anything “dramatic” with regard to Yellen’s speech.
“We look for a repeat of signals that the announcement on balance sheet reduction will come relatively soon (likely September) and that one more rate hike is still the base case this year,” these experts explained.
The Fed has made abundantly clear that it plans to move forward with balance sheet reduction sometime this year and markets widely expect the announcement to arrive at the policy decision on September 20 with October set as the most likely start date.
Referring to the tapering of the asset purchase program, San Francisco Fed president John Williams insisted earlier this week that it was “the most telegraphed thing in the history of central banks”.
“We're trying to make it boring,” Williams explained.
Doubts over another 2017 rate hike
However, while markets appear prepared for the “telegraphed” unwinding of the balance sheet, they remain skeptical over the Fed’s outlook that it will proceed with yet another rate hike this year.
Ahead of Yellen’s remarks, Fed fund futures price in the possibility at only around 44%, according to Investing.com's Fed Rate Monitor Tool, and, in fact, the odds for another 25 basis point increase do not pass the 50% threshold until March 2018.
“Already having initiated the normalization of the Fed funds target rate in December 2015, (Yellen) will likely try to convince markets that inflation in the U.S. in fact will pick up again, in order to justify further rate hikes,” Julius Baer economists predicted in their outlook for Jackson Hole.
“The subject of the speech alone is not a sufficient indicator for whether or not (Yellen) will comment on current policy,” Goldman Sachs said in a note to clients on the subject of the economic symposium.
These experts reminded their clients that at last year’s gathering the Fed chair stuck in an opening section on the “Current Economic Situation and Outlook” that “could just as well have been omitted” from her speech on “The Federal Reserve’s Monetary Policy Toolkit”.
With the balance sheet reduction baked into investor mentality, Yellen may well use Friday’s speech as an attempt to push market expectations closer to the Fed’s own outlook by reinforcing the idea that recent weak inflation figures were only transitory and that continued strength in the labor market will eventually serve to increase wages.
Ahead of the speech, the dollar was registering weakness. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, edged down 0.12% at 93.12 by 8:09AM ET (12:09GMT).
Stay up-to-date on market expectations for Fed rate hikes with Investing.com's Fed Rate Monitor Tool: