February 27th, 2015 12:38 pm | by John Jansen |
No shift here. NY Fed President Dudley just made his first comments since early December and these may feel dovish, but they are not new and merely reiterate a risk management approach to raising rates that was front and center at the January FOMC meeting. Much of what he is talking about includes previous remarks secular stagnation (doesn’t buy it), raising rates too early (by definition a mistake), and a terminal funds rate that has shifted lower (3.50% or only 25bps below the the median of all policy makers). For our money, even 3.50% is still too high.
The hawks want to keep June in play (i.e. Mester yesterday, Bullard today), but that is still a low probability event simply because the inflation profile will not have bounced sufficiently to satisfy “reasonably confident.” The Dots will fall in March, but still suggest at least 2 rate hikes this year is the likely path of policy. The market is still behind the curve and we will only know in the fullness of time what path proves to be the correct one. What we do know is that the Dudley comments today do nothing to move the needle in how we view the Fed, the Dots in March, or the path of rates going forward. We still like September and a year-end target of 0.75%. We suspect Dudley no doubt feels the same even if his Dot at 0.875% were to shift to 0.625% in March (mid-point of target and consistent with two rate hikes).