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bonds dollar fed fomc Markets richard clarida

Wishing On A Dovish Star

We're really reaching now.

Boy, folks are really reaching for something dovish out of the Fed these days.

Clarida showed up on CNBC this morning and said a whole bunch of nothing, but you’d think there had just been a dovish post-meeting Powell presser if you looked at a chart.

I’m not entirely sure why anyone would even both watching a Friday interview with a Fed official, let along trade off of it, but again, I guess the knee-jerk reaction speaks to just how anxious everybody is for a sign that the Fed hasn’t “gone loco“, to quote noted cross-asset strategist Donald Trump, of Oval Office Asset Management fame.

Obviously, the dollar fell and futures got a lift and bonds rallied. Here’s 10Y yields, because I’m feeling lazy with the charts today:

10Y

(Bloomberg)

And for what? What exactly was it that Clarida said that everyone seemed so convinced was overtly dovish?

He gave a passing nod to the slowing global economy as follows:

Going forward, you have to look at a lot of trends, including the global economy … Some of it is slowing.

That’s nice – I guess – but what exactly is the opposite of that? It’s not as if he can come out and say: “Going forward, you have to be myopic, which means paying absolutely no attention to the global economy.”

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As far as the neutral rate bits were concerned, Clarida’s “close to neutral” characterization is certainly an “improvement” (scare quotes there for a reason), from Powell’s misguided “long way from neutral” soundbite, but the reiteration from Clarida about data dependence by definition means that if the inflation numbers do something different than he expects (he said he doesn’t see a sharp uptick in inflation next year), well then it’s restrictive policy here we come. That’s hyperbole, but you get the idea.

Here’s what BMO’s Jon Hill had to offer:

The market is reacting to [Clarida’s] comments that we’re in the vicinity of neutral, the Fed has to factor in foreign growth headwinds, and that he doesn’t anticipate a big pickup in inflation next year. That clears the way for an expected lower path of real rates; so far, the whole rally has been in reals vs. declining inflation compensation.

One person who ain’t buyin’ it is SocGen’s Omair Sharif. “Clarida is simply observing that they are getting closer to that neutral rate and that the data will play an even more important role in guiding policy decisions”, he wrote Friday, adding that the Fed “is not trying to signal that they will necessarily stop at neutral.”

But don’t tell that to markets, because in the wake of Clarida’s comments, EDZ8-9 indicated that folks are now pricing in just 35bps worth of hikes for next year, down markedly from early October and, perhaps more notably, down from 50bps (two full hikes) just last week.

EDZ89

(Bloomberg)

I’m not sure that’s the correct interpretation here.

But I’ll let you decide for yourself. Here’s the video from CNBC…

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