William Dudley (a voting member of the FOMC), President of the Federal Reserve Bank of NY, made some "dovish" comments today in a speech.
He talked a bit about the "tapering timeline". Here are a few quotes:
The labor market, which the Fed is targeting with QE3, "still cannot be regarded as healthy," Dudley said, adding "there remains a great deal of slack in the economy."
He expects GDP growth of about 2.1 percent this year, about the same as it has been since the recession ended in 2009. But Dudley expects that to pick up next year.
Even under the timeline for reducing QE3, "a rise in short-term rates is very likely to be a long way off," Dudley said.
"Not only will it likely take considerable time to reach the FOMC's 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates," he said.
"Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy," he said Thursday in a speech at the Bipartisan Policy Center, a Washington think-tank.
"To the extent the market is pricing in an increase in the federal funds rate in 2014, that implies a stronger economic performance than is forecast either by most FOMC participants or by private forecasters," he said in prepared remarks, referring to the policy-setting Federal Open Market Committee.
My take --> Short rates (out to 1 year and including 3 month Libor that Leverage Loans are based off of) are definitely not going up for likely 2-3 years. As per my post yesterday on Leverage Loans...they are based off of 3 month Libor and it sits right now at .27%...that ain't much. (NB. Air Canada was marketing a U$ 1bln Term Loan B over the past week at L+425 and even widened it to L+500 but still came up with only U$500mm out of U$1bln required for the refi and decided to pull the deal).
Longer term rates are likely not going to rise much from here either. They clearly moved extremely quickly and were largely led by negative convexity selling pressure from mortgage hedgers. That selling pressure seems to have calmed down the last 3 sessions.
Heck, I wouldn't at all be surprised to see a Flight to Liquidity bid develop in 10yr treasuries given what is going on around the world (China, Japan, EM). Don't forget, at this stage, the Fed is still buying $85bln of treasuries and agencies per month. Nice backstop.