It’s rare when a key speech from Donald Trump plays second fiddle to another US policymaker, but that’s exactly what happened today.
Hours before Trump addressed a joint sitting of the US Congress, remarks from Bill Dudley, the New York Federal Reserve president, really created a stir for financial markets.
The case for raising US interest rates has become “a lot more compelling” since the November election, given rising confidence and expectations for fiscal stimulus, Dudley said in an interview with CNBC.
He cited a “very large” rise in household and business confidence and “very buoyant” financial markets to justify that view, adding that policymakers at the Fed “have the expectation that fiscal policy will probably move in a more stimulative direction”.
The hawkish remarks certainly had an impact, sending US bond yields, the US dollar and pricing for an interest rate hike from the Federal Reserve on March 15 sharply higher.
To Ray Attrill, global co-head of FX strategy at the National Australia Bank, they were also the main talking points for financial markets on Wednesday, rather than anything that was said by Trump.
“Dudley’s comments that the case for tightening had become a ‘lot more compelling’ helped move the dial on Fed pricing for a March rate hike from 56% at Monday’s New York close to 85% based on OIS pricing,” he wrote in a note released on Wednesday.
Given the lack of specific detail on policy from Trump’s speech, described by Attrill as “long on rhetoric, short on substance”, he says that it will now be left to upcoming economic data, and further statements from Fed policymakers, to determine whether or not the Fed will hike rates in two weeks time.
“For the next 10 days or so, the unfolding US economic calendar and Fed chair Yellen’s speech on Friday, will be more important for markets than the President’s Twitter feed,” says Attrill.
In particular, he says that next Friday’s US non-farm payrolls report for February will be crucial for financial markets.
“The onus currently looks to be on a relatively weak payrolls report next Friday to prevent the Fed moving on March 15th,” says Attrill.