US: Quiet agenda puts focus on fiscal and monetary policy – SocGen

In view of analysts at Sociee Generale, the US markets will be considering major objectives on fiscal and monetary policies in these final days of summer.

Key Quotes

“On monetary policy, attention will be directed to Jackson Hole for the Fed’s annual symposium. Both Fed Chair Yellen and ECB President Draghi will be speaking at the event. From Yellen, the market concerns are future rate guidance following soft inflation data and the reduction in the Fed’s balance sheet. Doubtful she will offer more than has been already said before Congress in July. Announcements on the balance sheet are widely anticipated at the 20 Sep FOMC meeting. The Fed states that Yellen will speak on Financial Stability. That topic can go in many directions. The QE reversal could be a financial stability item. Fed discussions have looked at financial asset prices too. Financial conditions are easy, but could they be too easy and a future reversal raises fears of instability.”

“Lastly, the Fed is a financial regulator, and has mixed regards on softening financial regulations that have been seen as instrumental in achieving financial stability. Randal Quarles, nominated for Fed’s Vice Chairman of Supervision advocates tweaking application of the Dodd-Frank regulation. Countering that, the Fed Board’s Vice Chairman Stanley Fischer, expressed concern for rolling back Dodd-Frank regulation which he credited with establishing financial stability after the crisis.” 

“Monetary concerns feed into fiscal concerns. We do not expect much progress on budget or debt limit while Congress is on recess. The Trump tweet storm is another matter. One major market concern is Trump’s pick for the Fed Chairman spot. Yellen’s term expires in February.  Normally we would expect a selection within the next few weeks. Trump and Yellen have indicated that Yellen could be re-nominated. The other key contender is Gary Cohn. Speculation last week was on whether Cohn might resign following comments from Trump. These important storylines will continue to dominate market discussions. Congress and the White House have important work on a FY18 budget and raising the debt limit. The new fiscal year begins Oct 1.  Treasury Secretary Mnuchin warns that the Treasury risks running out of cash on September 29 without a debt limit increase.  These immediate fiscal concerns are needed before tax cut/reform legislation can be approved.”