LAST WORD ON RATE HIKE MIGHT MEAN STANDING PAT
Wall Street wages big relief rally after Brainard’s comments
After four Federal Reserve officials served up their thoughts on the economy in recent days, investor sentiment seemed to be back where it was before they started talking.
Lael Brainard, a member of the Federal Reserve’s board of governors, spoke in Chicago on Monday, the last appearance from a Fed official ahead of the Sept. 2021 meeting in Washington, D.C. Brainard, considered a Fed “dove,” or someone who favors a cautious approach to rate hikes, remained true to form, suggesting a preemptive hike in short-term rates is “less compelling.”
Her comments helped set off a relief rally on Wall Street. Investors feared Brainard might push for a rate hike next week like other Fed officials have leading up to the meeting. Friday, the Dow Jones industrial average fell nearly 400 points, and both the Nasdaq composite and Standard & Poor’s 500 index lost 2.5% after Federal Reserve Bank of Boston President Eric Rosengren made comments that suggested a September rate hike might not be totally off the table. Prior to her speech at the Chicago Council on Global Affairs, speculation centered on the possibility Brainard, generally viewed as hesitant to implement quick increases, would signal her own willingness to take the plunge for higher rates. When she didn’t, the market cheered. Traders are betting the Fed won’t make a move on rates in September. Now, 85% of traders think the federal funds target rate will be 25 to 50 basis points as of September, where it is now. Only 15% of traders are expecting the rate to rise to between 50 and 75 basis points by September. Earlier Monday, Atlanta Federal Reserve chief Dennis Lockhart signaled a willingness to consider a rate hike this year, calling for a “serious discussion” even as he painted a mixed picture of the economy, saying he expects stronger growth in the second half of the year and noted “progress toward our full employment mandate” after strong job gains in recent months. Then there was Minneapolis Federal Reserve President Neel Kashkari, who isn’t a voting member, who told CNBC, “There doesn’t seem to be a huge urgency to do anything,” citing still-low inflation.