In an amusingly, and very symbolically, titled piece “Yellen steers left of the minutes”, JPM’s head of economic research Michael Feroli admits that while Yellen’s overall tone was dovish, the biggest bank by market cap continues to expect a December rate hike.
Here’s why, from JPM:
Yellen steers left of the minutes
Today’s talk by Fed Chair Yellen did not directly address the near term policy outlook, but the overall tone of the talk was dovish. Even so, we continue to expect the next hike in December. The sense conveyed by the minutes suggests that a strong majority is emerging in favor of another step before year end.
Three themes in the talk tilted dovish. First, she listed a number of ways in which running a “high-pressure economy” could help the supply side, such as stimulating greater capex, R&D, and labor force participation. Second, she stressed the role of monetary policy in anchoring inflation expectations—a dovish theme in light of the generally low levels of most measures of this variable. Third, she stated that easy monetary policy in the US is beneficial to growth overseas, arguably a good thing in light of ongoing global growth risks to the domestic economy.
Some of these themes are contested. Most notably, the argument that monetary policy can foster supply side gains has received very little public support by others on the FOMC (and was disputed by some of the presenters at the conference at which Yellen spoke). A December move accompanied with a continued signal of a gradual pace in 2017 would likely, we believe, appease the majority of the Committee while still giving some space for Yellen’s “high-pressure economy” thesis to be tested.