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Friday, November 17 2017 @ 03:33 PM AST

Why some are dovish on U.S. interest rates and what it means

Excerpt of Economic Commentary
by Lindsey M. Piegza, PhD
Chief Economist, Stifel

This week we heard from eight Fed officials. Speaking across a number of platforms on both the domestic and international stage, it is clear there is a varying degree of opinions among Committee members regarding the appropriate pathway for rates.

In todayís (June 23rd's) Economic Insight, we highlight the more dovish comments of Federal Reserve President Neel Kashkari (in photo at right) and the explanation for his dissent in June. For years, Fed officials have been reliant on predictive models to drive monetary policy. However, belief in the traditional relationship between labor market and inflationary forces, which has failed to materialize, has undermined the Fedís forecasting ability, leaving the Committee well shy of their inflation target for years. As Kashkari highlights, there is a rising concern regarding the ongoing divide between the Fedís forecast for future improvement and the more lackluster reality of the data.

In international news, the Eurozone flash composite PMI index fell from 56.8 to 55.7 in June, a five-month low. While a slowdown in the upward trend, the latest reading is still well above 50; furthermore, the region posted favorable figures for the quarter, the best in six years.

North Korea has carried out another test of a rocket engine. According to White House officials, this could be part of the country's program to develop an intercontinental ballistic missile. The news comes a day after Secretary of State Rex Tillerson urged China to increase pressure on North Korea to "rein in its atomic weapons and ballistic missile programs.

Dovish on interest rates means they will likely be kept low while hawkish means they will likely rise. The metaphor comes from the two birds - one aggressive (hawk) and the other calm (dove).

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