Stock Market Week Ahead: Cornucopia of Economic Tests With Earnings On Top

21 Nov 2015 | Author: | No comments yet »

Fed’s Bullard Says Investors Should Prepare for Uncertainty Era.

Thirty-year Treasuries logged their first back-to-back weekly gains since August as the prospect that the Federal Reserve will raise interest rates next month and declining oil prices dimmed inflation prospects. Minutes of the Fed’s October meeting, released this week, showed policy makers sought to signal a possible rate boost as soon December and that additional increases would occur gradually. Louis President James Bullard said investors should prepare for uncertainty on whether the Federal Open Market Committee will raise its target interest rate at each meeting next year, as the era of signaling moves is over. “We are going to return to an era where there is a bit more uncertainty about what the committee is going to do, meeting to meeting,” Bullard, who votes next year on policy, told reporters after a speech in Fort Smith, Arkansas. “Markets have been used to us being at zero for seven years where we didn’t have this kind of uncertainty.

I would welcome the return of that.” Bullard said the best guide to the FOMC’s pace of tightening will be the quarterly forecasts submitted by participants. Those maturities are most sensitive to inflation prospects. “The Fed has made the promise not to go too quickly,” said Gennadiy Goldberg, a New York-based U.S. rates strategist with TD Securities, one of the 22 primary dealers that trade with the Fed. “Inflation is still low.” Thirty-year yields fell three basis points this week, or 0.03 percentage point, to 3.02 percent, according to Bloomberg Bond Trader data. Bullard is counted among the “hawks” on the Fed’s rate-setting committee and has long said he thought the U.S. economy could handle a rate hike. Asked what gradual meant for 2016 and whether it would preclude, for example, an increase at the next meeting after liftoff, Bullard said, “I do think this will be debated a lot once the committee makes a decision on liftoff and this will be an important part of the policy debate in coming quarters.” “When we had a normalization in 2004 to 2006 we moved at the same 25 basis points per meeting for 17 meetings in a row,” Bullard said. “I am virtually certain that was not optimal monetary policy. Traders are pricing in a 68 percent probability that the Fed will lift its benchmark from near zero in December, and are signaling that the fed funds rate will still be below 1 percent in a year.

This time I am hopeful we can be more flexible and reactive to data.” “If the economy looked like it was slower, then maybe the committee would change plans a little bit,” Bullard said. “If the economy looked like it was stronger, then maybe the committee would go in a more hawkish direction.” Bullard joined the St. Bullard’s remarks came a day after comments by Atlanta Fed President Lockhart who said not only does he not expect rate hikes to occur at every meeting, he also doesn’t rule out rate hike pauses from time to time.

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