The dollar bulls really got disappointed after the overhyped Brainard speech proved to be just an overhyped one. As the speech was formally announced only Thursday, last week, there was a speculation that Lael Brainard, a member of the Federal Reserve board of Governors, would change her stance from dovish to hawkish as it would be Fed’s last chance to send a message of an upcoming rate hike in next week.
Instead, Ms. Brainard said,
- The Federal Reserve shouldn’t rush to raise rates given the low level of inflation and the risks from overseas and more so due to lack of tools to counter future economic shock. “In the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market…….To the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling.”
After her comments, the rate hike odds for September dropped close to 20 percent and the dollar slid against most of its major counterparts. Hike odds had reached 36 percent after Boston Fed President Eric Rosengren said that the economy is overheating and the case to hike rates is compelling. S&P 500 benefited from her dovish comments (now trading at 2153), while the dollar slipped (now trading at 95.1).