We begin with the United States where Janet Yellen indicated that a return to the more traditional techniques to manage monetary policy is unlikely going forward. That’s because with rates remaining depressed for the foreseeable future, there is only so much “traditional” easing that can be done before hitting zero. At the same time, few on the FOMC are willing to entertain the possibility of negative rates.
Chair Yellen also echoed the Fed’s Fischer’s earlier comments that a rate hike is coming.
Chair Yellen’s speech, Jackson Hole, Wyoming, August 26, 2016; Source: FRB
Markets initially had some difficulty finding direction, with a relatively muted overall reaction to the speech. Much has already been priced in.
1. The 2yr Treasury yield continued to rise.
2. The Treasury curve flattened further, with the 10y-2y spread hitting 76bp.
Source: St. Louis Fed (FRED)
3. It was strange to see gold and equities so correlated.
4. The September implied rate hike probability jumped to 42%, although many analysts remain skeptical.NFTRH Premium for your 50-70 page weekly report (don't worry, lots of graphical content!), interim updates and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com. Also, you can follow via Twitter @BiiwiiNFTRH, StockTwits, RSS or sign up to receive posts directly by email (right sidebar).