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Today's Economic & #Commodity #Futures Perspectives
Jackson Hole conference could provide new Fed policy hints

Jackson Hole conference could provide new Fed policy hints -- The 3-day Fed symposium that begins this Thursday in Jackson Hole will be watched carefully for any clues about the Fed's policy inclinations. The headline event will be Fed Chair Powell's speech on Friday titled "Monetary Policy in a Changing Economy."

The market is currently discounting the odds at 100% for another rate hike at the next FOMC meeting in about five weeks on Sep 25-26. The market is then looking for an unchanged policy at the following meeting on Nov 7-8 and a 76% chance of the fourth rate hike of the year at the Dec 18-19 meeting.

If the Fed goes ahead with the next two rate hikes in September and December, then the Fed will have pushed the funds rate up to 2.25%-2.50% from the current level of 1.75%-2.00%. The market is then looking for only one more rate hike in 2019, leaving the funds rate at a terminal level near 2.67% through 2020-2021.

That means that the market believes the Fed is nearing the end of its rate-hike regime. The Fed has so far raised the funds rate by +175 bp from the crisis level of 0.00%-0.25% and the market is expecting only about another 75 bp of rate hikes, meaning the market believes the Fed is 70% done with its rate-hike regime.

The Fed may already be starting to hint at how it will change its guidance language when it nears the end of its rate-hike regime. Indeed, the markets took notice when Fed Chair Powell at his mid-July testimony to Congress said that the FOMC "believes that -- for now -- the best way forward is to keep gradually raising the federal funds rate."

The phrase "for now" suggested that the Fed is already thinking about how it will shift it guidance language as it nears the end of its rate-hike regime. The phrase "for now" suggested that the Fed plans to move to a more data-dependent decision framework, as opposed to the current framework which is basically a time-based policy of raising interest rates every other FOMC meeting.

A more data-dependent decision framework would be particularly appropriate given the recent uncertainties such as (1) trade tensions, (2) a slower Chinese economy, (3) Italy's potential threat to Eurozone stability, (4) the Turkish financial crisis (with its threat to some European banks), and (5) general stress on the emerging market countries from the strong dollar.

To continue reading, http://ccstrade.com/blog

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