It's one toe stub after another at the FOMC

Williams commits a policy mistake without realizing it, and nope it's not bad for risk

On my recent interview with Kevin Muir on the Market Huddle, I discussed how the problems of Fiscal Dominance, out-of-control deficits, and general EM-ification of markets in the US are being compounded by a lack of understanding by the academics in charge at the FOMC regarding market regimes, communication, and forward guidance (“communication” matters more than ever; “forward guidance” is worthless).

Today’s toe stub is brought to you by John Williams. The news of his speech this morning highlight:

He doesn’t see any “urgency” to cut interest rates, becoming the latest central bank official to dial back the timing of any easing in monetary policy. Rates will need to come down at some point, he added, but that will be driven by the economy. “I think we've got interest rates in a place that is moving us gradually to our goals,” Williams said during a Semafor conference in Washington, DC.

Bloomberg would have you think this is all incredibly hawkish:

The US bond market’s recovery from the year’s highest yield levels was cut short Thursday by a Federal Reserve official’s mere mention of the possibility of an interest-rate increase. New York Fed President John Williams — in response to a question about the central bank resuming rate hikes — said “it’s not my base case.” He also said, however, that “if the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.” Treasury yields — already headed higher after the latest US economic data — subsequently rose further…

The equity markets are currently softening up a bit intraday and showing every sign of continuing the correction that began in early April. But I think there is a wrinkle here that this linear line of thinking is missing.