- Fed speakers advocating for tapering, mixed on lift-off timings.
- US dollar firmer as US yields rise on Monday on Fed expectations.
On Monday, we have heard from a number of Federal Reserve speakers, including Neel Kashkari who is the president of the Minneapolis Fed. His comments, however, were made Friday and not released until today.
We also heard from John Williams, the chief executive officer of the Federal Reserve Bank of New York and finally, Chicago's Fed's Charles Evans.
Their comments are mostly aligned in terms of expectations for tapering and rate hike lift-off, although Evans does not expect an interest rate hike to be warranted until late 2023.
"I see the economy as being close to meeting the 'substantial further progress' standard we laid out last December," Evans told the National Association for Business Economics annual conference in Virginia. "If the flow of employment improvements continues, it seems likely that those conditions will be met soon and tapering can commence."
Of the more dovish of the trio, Fed's Kashkari says ''our highest priority is to put people back to work ''and that ''it will take time for people to get back to in-person work because of covid fears.
He still sees "a lot of slack" in the US labour market, with some six million to eight million Americans out of work who would have been employed had the pandemic not hit.
"There still is slack on the sidelines," said Kashkari at the Pacific Northwest Economic Regional Annual Summit in Big Sky, Montana on Friday.
He said that recent high inflation readings are likely to be short-lived, and should subside as workers return to the labour force; still, he added, the Delta variant could slow the recovery.
"Very good progress" toward maximum employment
Fed's Williams echoed that of the Fed's chairman, Jerome Powell, by saying that the Federal Reserve may soon start to reduce the pace of its asset purchases if the economy continues to improve as expected.
It is clear there has been "substantial further progress" toward the Fed's goal for inflation and there has also been "very good progress" toward maximum employment, Williams said in remarks prepared for a virtual event organized by the Economic Club of New York.
"Assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted," Williams said.
"There is still a long way to go before reaching maximum employment," Williams said. "And over time it should become clearer whether we have reached 2% inflation on a sustained basis."
Fed chair Jerome Powell said after the conclusion of last week's meeting that the economy is one "decent" monthly jobs report short of meeting the threshold for tapering and will likely begin to do so in November.
Market implications
Both US yields and the greenback are higher on Monday because there is a stronger belief in markets that the Fed will choreograph a tapering move before the year ends. The dollar index, DXY, which measures the US currency against six major rivals, rose 0.33% to 93.490 the high on the day so far. The US benchmark 10-year Treasury yields hit a three-month high of $1.515%.
The greenback has been bolstered by the rise in Treasury yields ahead of a slew of Federal Reserve speakers this week who were expected to reinforce expectations of the start of asset purchase tapering before the end of the year.
Fed speakers will remain a key focus this week, led by Chair Jerome Powell, who will join Treasury Secretary Janet Yellen in speaking before Congress on Tuesday.
