US Fed's dove camp

Over the past few weeks the majority of the 17 FOMC members finally seemed to have agreed that a rate hike would be necessary before year-end. That was also the general tenor of the last minutes. 

As a result of the recently disappointing US economic data the market does not really believe that the Fed Fund Futures do not price in a rate hike until year-end 2015 now. Following a lot of to and fro it had at last become clear in which direction things were going as far as interest rates were concerned. 

However, since the beginning of the week two of the five Fed Board members have openly admitted to being part of the dove camp. First of all Lael Brainard, who sees downward risks for inflation in the short term. Moreover the improvement of the labour market was not a sufficient statistical indication to judge the inflation outlook.

And suddenly Board member Daniel Tarullo is putting his head above the parapet and re-iterates his colleague's comments. In his view the US was in a disinflationary environment and he does not want to support a rate hike in 2015. 

The fact that Brainard and Tarullo have openly confessed to being in the dove camp means two of the five Board members take a different view from their head Janet Yellen. 

And if there are such considerable differences even amongst the five Board members the question arises whether Yellen and her vice governor Fischer will be able to unite the entire FOMC team behind themselves over the coming weeks so as to reach a consensus and achieve a rate hike in December. 

"Until then one thing is clear, the Fed is not helping itself with its current communication strategy as the market is already putting considerable pressure on USD and might soon question its credibility", says Commerzbank.