Waiting for Mr. Dudley

April 7, 2015

Earnings do not really get under way until next week, and the few early birds coming through in the next few days, like the usual Alcoa, et al, are not bellwethers of much other than global demand for aluminum.

Which means the Federal Reserve speaking circuit and the coming minutes are probably most in focus. Fed Governor Jerome Powell will speak Wednesday morning on the “challenges of monetary policy,” meaning the central bank’s decision-making process.

Over the last several months, Powell’s speeches have tended to focus on the more technical aspects of monetary policy – the tools the Fed can use, activity that occurs in credit markets, risk-taking among banks as a result of accommodating policy – so he is probably not going to be that much of a bellwether. But of course, he’s a Fedster, so we gotta listen.

That same morning, Reuters will host New York Fed President William Dudley. Our editor, Steve Adler, will be asking him about monetary policy in hopes that he will say more than he did on Monday, when his comments were taken as a bit on the dovish side. Dudley’s statements about the weak pace of economic growth were enough to give the bulls a bit of a jolt on Monday. We will have to see if the Fed minutes (also due Wednesday) are enough to ignite a bit more buying.

The baseline expectation among the Fed-watchers is that September is the most likely point for finally raising rates. That may happen later, though, if the recent economic weakness (and what is it with the first quarter of the year, anyway?) looks to persist. David Kotok of Cumberland Advisors noted in commentary that the Fed “must manage the risk of waiting too long in order to avoid acting too soon.” He pointed to 1937, when excessive austerity hit a still-struggling economy.

Mike O’Rourke of Jones Trading was a bit more downbeat, saying Dudley’s remarks, while triggering something of a short squeeze, would not be much more than “more noise in this accordion tape that continues to churn. “There are times when bad is good because it will meaningfully alter policy,” he said. “In an environment of deteriorating earnings, premium valuations, a strengthening dollar and aggressive easing by other central banks, bad is bad.”

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Longer wait = Bigger bubble.

Posted by Mottjr | Report as abusive