There's the rub
The Fed absolutely must convince the market that liftoff is coming before it happens. If there's a 50/50 split in the market, it won't happen. The Fed, however, is dead-against pre-committing so they're stuck making vague pronouncements.
That's why today's Fed minutes are so important. It's a chance for the Fed to send a strong signal. But if they don't, a 50/50 pricing in the Fed (or anything under 60%) leaves the Fed in a position where it can't hike without causing a market fit.
More comments from Dudley
- Liftoff will signal Fed's confidence in the economy
- Looks forward to day when Fed can raise rates
- Much planning has gone into tools to raise rates
- he's confident the Fed is ready for normalization phase
- Fed doesn't know the effect of a rate hike on markets