FOMC Talk: Who Let the Doves Out?

Still scratching your head wondering what’s been bothering the Greenback these days? It must’ve been all this dovish talk from Fed officials! Here’s a quick recap of what they’ve said recently:

Stanley Fischer

forex fomcThe dollar’s troubles started early last week when FOMC Board of Governors member Stanley Fischer stepped up to the podium and started talking about how inflation might remain low for “somewhat longer.” Recall that Fed policymakers recently emphasized that they are putting more focus on inflation trends these days, apart from keeping track of labor market improvements.

Fischer added that the recent market volatility has made things more complicated, pointing out that he simply “does not know” if a March rate hike will be appropriate. Now that’s something we’re not used to hearing from the Fed’s most hawkish member!

Esther George

Kansas City Fed President Esther George, on the other hand, managed to reassure forex market watchers that the recent spike in volatility is “not all that unexpected nor necessarily worrisome.” She explained that policymakers shouldn’t make such a big deal about every blip in financial markets and instead focus on economic fundamentals.

Furthermore, George pointed out that asset prices are simply adjusting to the latest shift in Fed policy and that conditions still remain accommodative even with the December liftoff. In a nutshell, her speech was generally hawkish since she highlighted how far the U.S. economy has come since the financial crisis.

William Dudley

The dollar’s forex rallies barely gained any traction before New York Fed President William Dudley grabbed the mic and warned that financial conditions are much tighter ever since the Fed, well, tightened monetary policy in December. He also cautioned that the Greenback’s recent forex gains might wind up hurting the U.S. economy since these put a lid on inflationary pressures.

In his interview last week, Dudley shared that policymakers would have to take these tighter financial market conditions into consideration during their March FOMC meeting to gauge whether a rate hike is warranted or not. Keep in mind that Dudley, along with Fischer and George, are all voting members of the policymaking gang so we’ve got a pretty good idea of their biases leading up to the next Fed meeting.

Other FOMC members namely Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren also gave testimonies last week, but their remarks didn’t give too many hints on what the Fed has up its sleeve. What might be more crucial in terms of setting the tone for the dollar’s longer-term forex price action is the upcoming speech from Fed Chairperson Janet Yellen herself this Wednesday’s U.S. trading session (February 10, 3:00 pm GMT) so make sure you watch out for that!