Ian Shepherdson — one of the top economic forecasters on Wall Street — has changed his forecast and thinks the Federal Reserve will wait until December to raise rates for the first time since July 2006.
And in Shepherdson’s tweaked outlook is all because of what New York Fed president Bill Dudley.
Dudley, a Fed vice chairman and a voting member of the FOMC said on Wednesday that the Fed raising rates in September now seems, “less compelling.”
In a note to clients after the market close on Wednesday, Shepherdson wrote:
“It’s hard to imagine that Fed Vice-Chair Dudley would choose to say [on Wednesday] that he finds the case for a September rate hike ‘less compelling than it was a few weeks ago’ without having had a chat beforehand with Chair Yellen … Accordingly the odds of a September rate hike have just dropped further, and we have to push our forecast for the first move to December.”
Speaking on the New York-area economy on Wednesday, Dudley said when asked about the potential impact of Fed policy due to the recent stock market volatility that, “From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago.”
Dudley continued, “But normalization could become more compelling by the time of [the September 16-17 FOMC meeting] as we get additional information on how the US economy is performing and more information on international and financial market developments, all of which are important in shaping the US economic outlook.”
And so Dudley did, sort of, leave the door open for a September rate hike.
For its part, the market has sort of left the possibility of September rate hike behind, putting that possibility at less than 50% earlier this month. And while the stock market staged a huge rally on Wednesday, with the Dow and S&P 500 nearly gaining 4%, the volatility and uncertainty surrounding financial markets hasn’t gone away.
And with the markets still looking highly unsettled, it’s unlikely that any Fed officials looking for calmer markets saw what they wanted to see.