Atlanta Fed President Dennis Lockhart is once again yapping about multiple rate hikes this year.

I wouldn’t rule out as many as two hikes” this year said Lockhart to reporters last week.

Kaleidoscope Eyes

Recall that Lockhart made a speech to the Rotary Club of Savannah on March 21 entitled Kaleidoscopic Context for Monetary Policy.

In his speech, Lockhart cited “sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”

I commented on his speech with my take called Kaleidoscope Eyes.

Fed Officials Confident About Rate Hikes

The Wall Street Journal reports Fed Officials Gain Confidence They Can Raise Rates This Year.

Policy makers at the central bank are almost certain to leave rates unchanged when they meet July 26-27, according to their public comments and interviews with officials.

But the message in their postmeeting policy statement could be that the economy is on a more solid footing than it seemed to be when officials last gathered in June, setting the stage for raising interest rates if economic data hold up in the months ahead.

In early June, traders on the Chicago Mercantile Exchange put a probability of greater than 60% on the bank raising short-term rates by at least a quarter percentage point as soon as September, according to the CME. But that chance dropped sharply after a weak May jobs report and the June 23 Brexit vote, standing at just 12% on Monday before rising to 18% on Tuesday.

Atlanta Fed President Dennis Lockhart, a centrist at the central bank whose views often represent a middle ground among officials, told reporters last week it remains likely the Fed will raise rates this year, adding, “I wouldn’t rule out as many as two” increases.

“We should be looking toward removing accommodation,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview last week at the Official Monetary and Financial Institutions Forum. “We just should do it in a patient, gradual way.”

Low Hike Expectations

rate hike odds3

It’s rather amusing the things that happen every time rate hike odds get above 50%.

Another Lockhart Flashback

Undaunted by the miserable failure of his March “Kaleidoscope Eyes” prediction, on May 9, Dennis Lockhart was back at it with a “Keeps Faith in Strong Recovery” prediction.

Strong Recovery?

Pray tell, what constitutes a “strong recovery” these days?

  • 4th quarter 2015 GDP was 1.4%
  • 1st quarter 2016 GDP was 1.1%
  • 2nd quarter 2016 GDP estimates range from 1% (Markit) to as high as 2.4% (Fed Models)

The Atlanta Fed GDPNow model estimates 2.4% and the New York Fed Nowcast estimates 2.2%. For details, please see GDPNow and Nowcast Forecasts Tick Up 0.1 Percent; Diving Into Interesting Details.

Markit chief economist Chris Williamson had some interesting comments following the last Markit US Services PMI report.

  • Rebound, what rebound? The final PMI numbers confirm the earlier flash PMI signal that the pace of US economic growth remained subdued in the second quarter.”
  • “While volatile official GDP numbers are widely expected to show a rebound from a lacklustre start to the year, the PMIs suggest the underlying malaise has not gone away. The surveys point to an annualized pace of economic growth of just 1% in the second quarter.

For more details and comments from Williamson please see PMI Services Essentially Flat, Non-Manufacturing ISM Jumps Huge.

The Hikes are Coming!

fedwatch 2016-07-20

With odds of a hike by September at roughly 25%, the Fed trots out Lockhart once again in an attempt to convince the market that “The hikes are coming! The hikes are coming!”

Shut Up and Do It

The Fed is captive to the markets. It will not hike unless it can first convince the market first.

Mike “Mish” Shedlock