Fedspeak for the Week Ahead

Federal Reserve, Fedspeak – Talking Points

• Fed Gov. Christopher Waller pushes back on market euphoria in Sunday comments
• Fed Vice Chair Lael Brainard calls for regulation following FTX crisis
• Light week for economic data sees Fedspeak come into focus

Following a wild ride in the markets last week, Federal Reserve speakers are back out in force. After a weaker-than-expected October CPI print, markets rushed to price in a lower Fed terminal rate. The significant loosening of financial conditions may be unwelcomed by Federal Reserve officials, who have already come out and stated that it is “premature” to claim victory over inflation.

In comments made on Sunday, Fed Gov. Christopher Waller indicated that the market should begin to focus on the endpoint of the Fed’s rate hiking cycle, rather than the pace of rate hikes. Following last week’s soft CPI print, risk assets surged as markets rushed to price in a 50 bps rate hike at the December meeting. Waller also stated that the October CPI print was “just one data point” and that more data is needed to indicate a material slowdown in inflation. Waller also described the 7.7% annual rate as “enormous,” before continuing on to say that a 50 basis point rate hike is still a significant hike.

Fedspeak Calendar for the Week Ahead

Fedspeak this week will be interesting to watch, as market participants will likely be looking for any potential pushback on recent market moves. As mentioned, Christopher Waller already cautioned market participants in his Sunday remarks, and this theme could build as the week goes on. While Chair Powell opened the door to optionality at the November FOMC meeting, he also reiterated that a slowdown in the pace of rate hikes does not equate to a lower terminal rate. The message from Powell just two weeks ago was that “higher for longer” could be the new regime for the Federal Reserve.

Should this be echoed in comments throughout the week by other central bankers, markets may experience yet another repricing of interest rates. The 2-year Treasury yield has moved higher off of the post-CPI lows, currently trading around 4.40%. In the days following last week’s CPI print, market pricing for 50 basis points at the December policy meeting has shifted from 50/50 to 80/20.

December FOMC Rate Hike Probabilities

Courtesy of CME Group

This is a light week in terms of major economic data in the US, meaning catalysts for major moves across markets will likely come from elsewhere. Traders will receive producer price data (PPI) and retail sales data on top of the numerous speeches from Federal Reserve officials.

Upcoming US Economic Calendar

Courtesy of the DailyFX Economic Calendar

Fedspeak Recap for Monday’s Session:

Lael Brainard, Federal Reserve Vice Chair

• Actions by the Fed can be seen in financial conditions and inflation expectations
• Because monetary policy has lags, it is logical to remain cautious
• For the December meeting, we need more information
• It is probably appropriate to soon move to a slower pace of rate hikes
• It appears cryptocurrencies are not decentralized but rather interconnected and concentrated
• FTX failure reinforces the need for regulation in crypto
• The Fed is committed, the goal remains to contain inflation expectations

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— Written by Brendan Fagan

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