VIEW: RBC: Clarida Sets Up Very Low Hurdle For Future Interest Rate Hikes

RBC provide their view on comments made Fed Vice Chair Clarida on Wednesday: "He just set up a very low hurdle for future interest rate hikes. PCE inflation is poised to hit 2% y/y in the next few months and we do not have it falling below that well into 2022 - and that is with modest baseline growth assumption"

• "It was striking because he is saying that the make-up strategy is not really a strategy at all. On some level we can't help but feel he may try and clarify this statement (i.e. back away from it) in a coming speech or some Fed official will come out and clean this up. But let's keep in mind, this is Clarida making the comment. He is the Vice Chair and the one that usually does the cleaning up."
• "The bottom line is this was a hawkish comment. And while it fits neatly with our broader view for how the second-half of the year will unfold, the messaging shift is seemingly happening much faster than we anticipated. Recall that before Clarida's recent musings, we saw the committee introduce the idea of QE tapering in the latest round of minutes and this was followed up by some members noting this could happen as early as this year. We are surprised that the Fed has been doing so much hinting at the fate of policy shifts this early in the year, especially when they have the cover to remain super dovish on the back of a resurgent virus and the near-term challenges as a result of this. Given this context, this statement from Clarida can only be interpreted as quite hawkish."