Fedspeak: mixed messages but not shaken by downside surprises - Nomura

Analysts at Nomura explained that during his interview on CNBC, Federal Reserve Bank of Chicago President Charles Evans noted some caution regarding the recent slowdown in inflation. 

Key Quotes:

"He indicated that inflationary pressure may pick up as transitory effects wane, but noted that he remains “nervous.” Elaborating on the reasons for his caution, he mentioned increased competition and structural changes in the marketplace as possible factors that could place downward pressure on price margins. He further indicated that the Committee should wait until December before making a judgment on appropriate number of rate hikes in 2017.

This sense of caution appears to be shared by Dallas Fed President Robert Kaplan. Speaking at the Commonwealth Club in San Francisco, he also indicated a preference for being patient before pushing forward with further tightening. However, he emphasized the recent tightening in the labor market and stated that the current growth, albeit sluggish by historical standards, is sufficient to continue to take slack out of the market. Further, in defense of the latest hike in the June FOMC meeting, he stated, “You can’t wait for signs of overheating of inflation.” 

Similar to New York Fed President William Dudley’s remarks yesterday, President Kaplan’s message appears consistent with the FOMC’s message that the Committee, on balance, has not been shaken by downside surprises. Last, regarding the balance sheet, President Kaplan stated that an appropriate time of the beginning of the roll off should be sometime later this year, consistent with the recent message from June FOMC meeting. However, as expected, he did not provide any details about other aspects of the balance sheet policy."