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This Week: Fed Speak Keeps Alive Obsession On 2015 Rate Hike

Federal Reserve policy obsession has died down since last week’s interest rate meeting but hasn’t entirely disappeared. The “will they or won’t they?” tug and pull in the stock market will likely continue, especially in a week jammed with data on the very revealing housing market and a sprinkling of Fed speeches.

Commodities and currency trade continue to hold influence. Oil rises to start the week, recovering a sliver of Friday’s slide. The U.S. dollar is firmer as traders shrug off a dovish, if still uncertain, short-term Fed stance.

At least for last week, the stock market’s intraday volatility was much stronger than the week’s result would lead you to believe. The broad-based S&P 500 (SPX) only ended the week down 0.2% (figure 1). Still, higher levels of volatility could be here to stay. It’s possible that the CBOE Volatility Index (VIX), the broad market’s “fear gauge,” could continue to hover in a “new normal” range that’s much closer to historically familiar territory near 20 (figure 2).

Financial markets are already looking to the Fed’s upcoming October and December meetings and trying to handicap the odds for a rate hike (the first since 2006) then versus early in 2016. Federal Reserve policymaker James Bullard said over the weekend that he argued against holding rates steady last week because he believed the economy had recovered enough to begin raising rates, according to financial press covering his remarks. Bullard also reportedly described the meeting as “pressure packed,” and said the decision to hold rates steady was “a close call.” Let’s see if this week’s data—on housing especially, but also another GDP revision—make...