Further to yesterday’s comments, U.S. Federal Reserve Chairman Janet Yellen addressed the following themes yesterday:
- Is a rate hike potentially in the cards in 2017? YES, the Fed is still considering it.
- Will the Fed begin reducing its balance sheet in October? YES, unanimous decision.
- What are the economic projections for 2017-2018-2019 (inflation, jobs, growth, etc.)? Growth upgraded for the 3-year period. However, weak inflation remains a “mystery” and monetary policy could be adapted to it.
- Does Ms. Yellen have a future leading the Fed? Highly unlikely. Ms. Yellen has not met recently with U.S. President Donald Trump.
Overall, the Fed remained upbeat, which appears to have done a bit more to convince markets that the much-discussed rate hike in December 2017 will, in fact, happen. The likelihood now stands at 65%. There does remain one major variance, however: the Fed is telling us four key rate increases by the end of 2018, while the market only sees one. Our economists are calling for three. The USD’s reaction to the news was crystal clear: an across-the-board increase. But with a CAD that is hanging tough, the increase was less and the level put forward yesterday (1.2415) was not breached.
Olivier Cosialls
Range of the day: 1.2240 – 1.2415