Everyone knows the fable about The Boy Who Cried Wolf. You know, the shepherd who mocks the villagers that respond to his false cries for help. When a real wolf appears, no one lifts a finger.
Let’s turn our attention to the Federal Reserve, and the connection will become clear. At the end of last year, the Fed’s dot-plot projected four rate hikes in 2016. Fall is approaching, and so far, nothing.
If it’s not China, it’s the yuan. If it’s not the yuan, it’s a wobbly stock market early in the year. If it’s not a wobbly stock market, it’s a weak May employment report. If it’s not a weak May employment report, it’s Brexit.
All have played a role in delaying the Fed, even as none of these events crashed into the U.S. economy.
More recently, we’ve had three Fed officials—Dudely, Lockhart, and Williams—all explicitly state that the September meeting is in play. But a quick glance at fed funds futures reveals investors aren’t buying it. Currently, futures are suggesting just an 18% chance of a September move. It’s the boy who cried wolf.
On August 26, Fed Chief Janet Yellen will speak at the Annual Kansas City Economic Symposium in Jackson Hole, WY.
I can’t think of a more picturesque setting for a conference that attracts economic heavyweights from around the globe. You may recall that this is where former Fed Chief Ben Bernanke first hinted at QE2.
Yellen’s remarks will be closely followed for any explicit hints that September is on the table. Even then, we have one more jobs report before the September meeting.
However, let’s not forget that a weak May number forced Yellen to backtrack in early June. Again, I’m reminded of Aesop’s Fable, The Boy Who Cried Wolf.
