The Federal Reserve is indeed divided

Covered in the Wall Street Journal (WSJ), Fed officials are divided in respect to their monetary policy. 

Markets are pricing in every word and sentiment that is coming from Fed officials at the moment, even more so since the Fed tapered their QE programme and finally raised interest rates back in December 2015 by 25bps. The majority of the rhetoric has been hawkish from FOMC who have remained bullish, albeit cautiously at times, in respect to the recovery taking place in the US economy. However, the recovery has not been at a level where a September rate hike is likely to be on the cards, as reported in the WSJ, "Federal Reserve officials, lacking a strong consensus for action a week before their next policy meeting, are leaning toward waiting until late in the year before raising short-term interest rates." Despite that, markets were spooked last week by more hawkish comments, despite the poor US data, which sent markets into a frenzy concerned that the Fed cold tighten regardless of data performances. However, in stark contrast to such comments, today's Fed rhetoric from Fed's Brainard was on the more cautious side once again which enabled U.S. markets and risk asset classes to rally and recover the bulk of last week's sell-off.

Fed's Brainard advises prudence in the removal of policy accommodation

We now look ahead to the FOMC, and while it is not expected that we will see a rate hike, "The Fed could present a more optimistic view about risks to the economic outlook," argued Jon Hilsenrath at WSJ, adding, "Early in the year, officials worried that a range of issues could derail growth and hiring. That included market turbulence tied to worries about China’s economy and to Britain’s decision to leave the European Union. Those worries have dissipated."

If the Fed really are data dependent, then this final couple of months are going to be crucial, and should the economy not improve, a rate hike may not even be justified in December. However, Jon Hilsenrath at WSJ, finished the article suggesting, "After flagging their worries for several months about risks to the economic outlook, officials could revert to calling these risks “balanced,” meaning the central bankers have become more open to raising rates later this year, as long as the economy doesn’t stumble in the weeks ahead.

The big bluff in the era of Central Bank monetary socialism