The bond market versus Bullard
The US dollar rallied and front-end Treasury yields rose after the Fed's Bullard says there was a better than 50% chance the Federal Reserve will hike rates in September.
"The economy as a whole -- you can complain about this or that being sluggish -- but it's not in emergency mode," he said. "We've got unemployment very close to the natural rate. Inflation is a little low" but will probably return to target, he said.
The OIS market is pricing in about a 40% chance of a Fed hike in September. That's up from about 30% at the start of the month. About
half 80% of economists are forecasting a hike.
Before you make a trade on a Bullard comment, remember this:
- In 2012, he forecast rate hikes in 2013.
- He forecast 3.5% growth in 2013 (it was 2.2%)
- In January 2014, he forecast 3.2% GDP that year (it was 2.4%)
- If he's wrong, he doesn't have answers. He called low inflation "a mystery" last year
- He forecast a hike in Q1 2015 and continued to do so midway through Q3 last year
Bullard showing how many years in a row he's been wrong
The dagger to his credibility came in October when he talked about the Fed extending QE after a little round of market volatility.
Despite all his optimistic talk of rate hikes, he's not likely to dissent. Five regional central banks are now voting for discount rate hikes in the most minor dissent but he's not.