The US dollar remains in a consolidative mode as participants await fresh incentives.  The bulls have been denied fresh excuses to push the trend that has carried the US Dollar Index higher for an unprecedented ten consecutive weeks.Â
NY Fed’s Dudley, like Yellen played down the Fed’s own forecasts, arguing that the confidence around the longer-term forecasts were so low as not to avail themselves as very useful guidance. We identified another reason not to put much weight on the dot plot.  Namely that by including all the Fed regional presidents, not just the voting members, and that this dilutes the policy signal.Â
The unexpected decline in existing house sales, which had been one of the bright spots in an otherwise disappointing housing market reported yesterday, coupled with Dudley’s dovish talk has kept the bulls cautious.  Not only are existing house sales lower than a year ago in August, but the amount of time needed to sell has increased (53 days from 43 days last August) and the unsold inventory has risen (4.5% year-over-year). Â
Separately, the Chicago Fed’s National Activity Index collapsed to -21 in August from downwardly revised 26 in July.  It is the first negative reading since January.  Our warning that the US labor market may be losing some momentum may be more broadly applicable to the US economy.  It appears to have lost some momentum as Q3 wound down.  While Q2 growth is widely expected to be revised higher later this week (4.6%+ from 4.2%), this pace is unsustainable.  The economy is expected to slow by more than one percentage point in Q3, and Q4 may be a bit lower still. Â
Many investors have moved on from simply focusing on the timing of the first Fed hike to considering the pace of the tightening and the terminal rate of Fed funds.  A CNBC poll before Jackson Hole found consensus expectations for a peak in Fed funds rate of 3.15% in 2017.  The August 2017 Fed funds futures contract, which admitted is not actively traded,  implies an effective average Fed funds rate of about 2.40%. Â
