June is off the table

It’s official: June is off the table.

On Tuesday, Federal Reserve Chair Janet Yellen delivered remarks before the Economic Club of New York.

The tone was decidedly dovish, with the dollar falling, Treasurys rallying, and stocks moving higher following the speech’s release.

And in a quick reaction to the speech, Neil Dutta at Renaissance Macro said the upshot of this commentary is clear: The Fed will not be raising interest rates in June.

Among the most dovish commentary from Yellen’s speech was a note that caution in raising interest rates is “especially warranted.”

Yellen also emphasised that the path of future rate hikes is necessarily uncertain.

Here’s the key paragraph from the speech:

Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy. This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric. If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilise the economy. By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero.

Headlines from Bloomberg indicated that the next fully-priced interest rate hike from the Fed is January 2017.

Read the full speech here »

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