Yesterday just after 11am, the dollar spiked and risk assets slumped after what was a significant miscommunication between Chicago Fed president Charles Evens, the Bloomberg headline algo and traders. As we explained at the time, the dollar hit a 1 month high after a Bloomberg headline hit according to which Evans said that the “Fed May Raise Rates Before Average 2% inflation reached.”
The problem, as economist Julia Coronado explained, is that much was lost in translation as contrary to the Bloomberg headline, Evans merely “acknowledged flexibility in the statement, that the inflation bogeyman still lurks in the minds of some on the FOMC, but NOT HIM. He prefers to run it hotter, not limit to a “timid overshoot.”
In parting, we said to “expect upcoming Fed speakers in the coming days to undo the damage that this particular “lost in translation” headline achieved.”
We didn’t have long to wait, because amid a barrage of Fed speakers today (and tomorrow), Chicago Fed’s Evans spoke again this time in a moderated discussion hosted by MNI, and set the record straight on what he actually meant, saying that in his view, “we just have to be pretty clear that 2.5% inflation for some period of time is likely in the cards if we’re doing our jobs right” adding that “we need to be above 2% for some time,” referring to inflation.
Underscoring that the market’s reaction yesterday was wrong – as we expected he would – Evans then made it abundantly clear that “I don’t fear stronger accommodation to support inflation,” and “the setting of monetary policy I think is quite adequate.” He concluded by toeing the party line, namely that fiscal-policy stance -i.e., Congressional stimulus – will be “crucial” going forward.
It was too little, too late, and with the dollar igniting upward momentum on his comments yesterday, his reversal today barely registered in the dollar’s continued ascent.
Meanwhile, the initial risk off mood in markets that was sparked by his comment on Tuesday has only accelerated, with stocks trading near session lows by the time his second at bat came, and nobody cared.