Dollar Surges After Algos Misinterpret Evans Headline That “Fed May Raise Rates” Before 2% Inflation Hit

In a stark example of how the market responds to any given Bloomberg headline, moments ago the dollar surged, rising to a one month high, after Chicago Fed President Charles Evans said the Fed could raise interest rates before the average 2% inflation target is reached…

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… with the dollar surge also weighing on stocks.

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Needless to say, this statement is bizarre coming from the uber dovish Fed and flies in the face of everything the Fed’s new inflation targeting framework hopes to achieve. However in yet another example of critical Fed communication being lost in translation, Julia Coronado of Macropolicy Perspectives explains why the market’s reaction appears to have been misplaced. As she notes, the Bloomberg headline was “terrible”, as Evans merely “acknowledged flexibility in the statement, that the inflation bogeyman still lurks in the minds of some on the FOMC, but NOT HIM. He prefers to run it hotter, not limit to a “timid overshoot.”

EVANS: FED COULD RAISE RATES BEFORE AVG 2% INFLATION REACHED

Terrible headline! Evans acknowledged flexibility in the statement, that the inflation bogeyman still lurks in the minds of some on the FOMC, but NOT HIM. He prefers to run it hotter, not limit to a “timid overshoot”

— Julia Coronado (@jc_econ) September 22, 2020

Of course, since Bloomberg is limited on the size of its headlines, it picked the key message and that was enough for algos to unleash momentum in the dollar. As a result, expect upcoming Fed speakers in the coming days to undo the damage that this particular “lost in translation” headline achieved.