Fischer, whose views are usually in line with Yellen’s, said on Sunday that the Fed was close to its policy targets on unemployment and inflation, and that he expects U.S. growth to pick up in the coming quarters.
Advertisement
The CME Group’s FedWatch tool, a gauge of Wall Street’s expectations for a Fed interest-rate hike, indicated that the market was pricing in an 18% probability of a rate increase in September and 43.1% in December.
The S&P 500 shed 1.23 points, or less than 0.1%, to finish at 2,182.64. Chinese stocks dropped on Monday amid concern the rising odds of a US rate increase will weaken the yuan and on investor anxiety that state-backed funds sold equities. Markets are implying around a 50-50 chance of a Fed hike by the end of the year but are not fully priced for move until mid- 2017.The currency market has been recently buffeted by conflicting views on US monetary policy.
“Stan Fischer’s comments clearly raised the risk of a more hawkish tone from Yellen on Friday”, said Dennis Debusschere, a senior managing director and global portfolio strategist at Evercore ISI in NY. “So that’s impacting the dollar, risk assets and commodity prices”.
The dollar’s stability came after the index fell about 1.3 percent last week on what traders perceived as mixed signals from Fed officials. “And that, I think, is the strongest argument for trying to slowly normalize rates, because otherwise you contribute to excessive risk taking”.
The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.2 percent to 94.718, pulling away from a six-week low hit last week after minutes of the Fed’s last policy meeting showed rate-setters split on when to hike.
Japan’s Topix index lost 0.3 percent as the yen traded at 100.12 against the US dollar.
A retreat in crude-oil prices also weighed on the broader market, dragging shares of oil and gas companies into the red. Australian shares also advanced, with the benchmark ASX 200 (^AXJO) up 0.92 percent as the heavily-weighted financials sector gained 1.11 percent. Yet he also questioned whether the Fed had the power to stimulate worker output, asking whether the economy is “doomed to slow productivity growth for the foreseeable future”. The real key will be for investors to become comfortable with the idea that the Fed buys into a secular stagnation argument and is prepared to make policy accordingly. That may imply that the trend we’ve seen towards lower interest rates in the U.S., Europe and Japan will spread elsewhere.
“The implication is that Fed officials don’t really know what to do next”, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.
During Asian hours, oil prices retreated further, with the new October forward-month contract for USA crude futures down 1.35 percent to $46.77, after falling 3.6 percent overnight.
Advertisement
Because of the production and storage overhang in fuel markets, Barclays said this month’s 20% price rally is unwarranted and that oil prices of $50 or higher are unsustainable.
