Page 16 - July-August 2018 GSE Report Flip Book

MONETARY POLICY
JJUALN. U- ARUYG. 22001188
BMO Capital Markets analysts wrote:
...As Powell made clear in last Friday’s speech, the Fed is utilizing a
risk management approach. With unemployment below the lowest SEP submission for what constitutes sustainable – and expected to print another tenth lower next week – it will be very hard for the FOMC to justify actively maintaining an “accommodative stance of monetary policy” if wages convincingly break out of the prevailing 2.4% - 2.8% trend seen since last 2015.
Finally, we found Secretary Mnuchin’s comments that he is “not at all concerned about the yield curve” intriguing because the justification was cheaper long-term debt. At risk of over interpreting the CNBC interview, his comments would imply that as the curve flattens, Treasury may term out issuance, which would be a deviation from the front-end heavy strategy employed in recent years. While we’re unconvinced that this was the intention, it will be interesting to see if there’s any follow up communication on the topic. Of course, if Mnuchin had stated that he interpreted a flattening curve as a sign of an impending recession, that would be a sharp deviation from the administration’s preferred line, so his lack of faith is not all that disturbing, or surprising, from a political angle. (Lyngen/Hill BMO Closing Call, Ian Lyngen, Jon Hill and Ben Jeffery, 08/28/18)
“Chair Powell may have become less certain over the pace of short-end interest rate hikes AFTER the upcoming twenty-five bps short-end rate hike at the September 25-26th Meeting, but, the U.S. economy’s performance clearly points to a more HAWKISH path for interest rates than forwards markets pricing over the coming EIGHTEEN-Months,” wrote John Herrmann of Mitsubishi UFJ Securities. (U.S. Day Ahead, John Herrmann, 08/28/18)
Senate confirms Richard Clarida to serve as the Fed’s vice chair
On August 27, the Senate confirmed Richard Clarida to serve a four-year term as the Federal Reserve’s vice chairman by a vote of 69-26. Only one Republican, Senator Rand Paul (R- KY) voted against Clarida’s nomination. Clarida is a managing director at Pacific Investment Management Co. (PIMCO) and has served as an economics professor, including four years as department chair at Columbia University. Previously, he served as the top economist in the George W. Bush administration and at Treasury in the George H.W. Bush administration.
The vote comes days after President Trump expressed concerns about rising interest rates. “I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” said Trump said in Reuters interview on August 20. The outlook for the Senate’s confirmation of the president’s other
© 2018 by Canfield Press, LLC. All rights reserved. www.canfieldpress.com 17