Michael Every, Head of Financial Markets Research at Rabobank, notes that as suspected, yesterday saw Fed speakers Dudley and Lacker back the prospects of a June rate hike.
“The former saying that a June (or July) move was “reasonable” if data stay on track, and the latter seeing a “strong” case for acting next month. There wasn’t much need for Kremlinology in parsing those statements. Indeed, for an institution that prides itself on its transparency, and which certainly provides an endless stream of verbal output, the current message appears clear: rates will rise further.
Perhaps the only reason the markets have for confusion is that the direction of the Fed’s clarity seems to shift depending on how financial markets are acting. Arguably that’s why there was a 41% chance of a June move priced in up until mid-March, which had plunged to only 4% as recently as Monday, yet was back up to 32% yesterday morning as the Fed hawks started flapping their wings. Strangely, however, this was down again to 28% this morning Asia time. It will certainly be interesting to see how the Fed’s rhetoric shifts if that trend continues up until the next FOMC meeting.”