Economic Update – Hawkish Yellen on March Rate Hike, Basel Committee Meet…

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Following Janet Yellen’s comments today on the prospect of an interest rate hike in March, the probability of it happening, according to the CME Group, now stands at 81.9%.

CNBC: Janet Yellen puts a rate hike on the table for this month

  • “We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect,” Yellen said at a speech in Chicago, according to prepared remarks.
  • “Indeed, at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she added.
  • “Given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016,” Yellen said.

BIS: The Chairman of the Basel Committee reaffirms commitment to finalise post-crisis Basel III reforms

  • Following this week’s meeting of the Basel Committee, Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank, made the following statement.The Basel Committee has made further progress towards the finalisation of the Basel III reforms.
  • Committee members reiterated their broad support for the key features of these reforms, which include revisions to the risk-weighted asset framework, the leverage ratio framework and the output floor. The differences, where they remain, have narrowed and work continues to reach an agreement.
  • While the finalisation of Basel III will take longer than originally expected, the Committee remains determined to reach agreement on the remaining elements, and recognises the importance of providing clarity and certainty to all market participants.

Market Watch: Fed’s Bullard sounds cool to idea of March interest rate hike

  • St. Louis Fed President James Bullard on Tuesday sounded cool to the idea of a March rate hike.
  • Given his forecast of 2% annual growth rate this year and 2% inflation, “I wouldn’t see any reason to be especially aggressive about interest-rate hikes in this environment,” Bullard told reporters after a speech at George Washington University.
  • “I don’t really see any different data” to cause the odds of a March move to rise, Bullard said.

Reuters: St. Louis Fed’s Bullard says balance sheet reduction should start now

  • With its inflation and unemployment goals in sight the U.S. central bank should begin decreasing the size of the mammoth balance sheet accumulated during its battle against the 2007 to 2009 financial crisis, St. Louis Federal Reserve Bank President James Bullard said on Tuesday.
  • Maintaining the Fed’s current $4.4 trillion in securities and other assets as it begins to raise its policy rate, Bullard said, means the central bank is in effect pushing up short-term borrowing costs while its asset holdings pull down long-term rates.

CNBC: Fed’s Fischer avoids rate debate, makes case for free hand in policy

  • Fed Vice Chair Stanley Fischer cautioned against binding the central bank to rules when it comes to making decisions on monetary policy.
  • His speech on Friday, however, avoided any direct comment on monetary policy at a time when most of the market expects the central bank to approve a rate hike later this month.
  • “Committees and rules each have their advantages. Committees embody a wider range of information and have a capacity for innovation,” he said in his prepared remarks.
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