FOMC participants communication: a touch more hawkish, Ukraine should not derail the plan.
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Waller, Bowman, Mester, Barkin, Bostic, Daly, and Harker.
Keep in mind
Several participants have signaled that -conditional on yesterday’s information set- the implications of the war in Ukraine should be relatively small for the US economy and should not derail monetary policy. Other participants noticed that the war in Ukraine increases uncertainty around the outlook and/or that it is too early to judge its impact.
(for the record: we do agree with the FOMC participants that the implications for US core inflation seem -so far- very limited and the models’ forecast for this year and the next are essentially unrevised).
As for the March hike:
- Waller made the case for an aggressive move (50bps) “if, for example, PCE inflation report for January, and jobs and CPI reports for February indicate that the economy is still running exceedingly hot”.
- Bowman said she “will be watching the data closely to judge the appropriate size of an increase at the March meeting”.
- Harker stressed that uncertainty is elevated and therefore expressed a preference to begin with a 25bps hike. However, he added that “I would not say ‘never’ to a-50 basis point increase. If inflation really comes out at the next reading much higher than we hoped and we are not seeing any movement downward, I would be more open to it but right now I’m not, I need to let the data speak”.
Overall, we end this week a touch more hawkish. The majority of the FOMC participants remains oriented for a 25bps hike in March. Data can change the orientation, although we would probably need some large upward surprises in the next CPI report for a 50bps move in March.
FOMC-meter
Dovish
Leal Brainard
John Williams
Charles Evans
Mary C. Daly
Neel Kashkari
Neutral
Jerome H. Powell
Michelle W. Bowman
Thomas I. Barkin
Hawkish
Christopher Waller
James Bullard
Esther L. George
Loretta J. Mester
Raphael Bostic
Patrick T. Harker
Note: FOMC voters are bolded.
Recent FOMC participants' statements - most recent statements in blue
Jerome H. Powell – Chair – Dovish
No recent statements.
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
February 24
From Fed Board (here). “Turning to my outlook for the economy, my greatest concern is continued elevated inflation.”
“The path of inflation is the biggest risk to my outlook. As we move through this year, I can’t emphasize enough how much this outlook, and the appropriate stance of monetary policy, will be influenced by the data that we see about the performance of the economy.” “In December, some people were a little surprised to hear me say that inflation was “alarmingly high,” but after the latest inflation numbers, I think we all should be alarmed.” ” It is alarming because of the risk that high inflation could become ingrained in people’s expectations and prove difficult to rein in, undermining economic growth.”
“Based on the inflation data in hand, I believe the Fed needs to act promptly to begin tightening monetary policy.” “The FOMC has already taken actions to end asset purchases in early March, and I believe that the recent inflation and jobs reports have made the case to begin raising the target range for the federal funds rate at our March FOMC meeting. Based on my outlook, my preference is to increase the target range 100 basis points by the middle of this year. That is, I expect inflation to remain elevated and only show modest signs of deceleration over the next several months. As a result, I believe appropriate interest rate policy brings the target range up to 1 to 1.25 percent early in the summer.”
“The pace of tightening will depend on the data. One possibility is that the target range is raised 25 basis points at each of our next four meetings. But if, for example, tomorrow’s PCE inflation report for January, and jobs and CPI reports for February indicate that the economy is still running exceedingly hot, a strong case can be made for a 50-basis-point hike in March. In this state of the world, front-loading a 50-point hike would help convey the Committee’s determination to address high inflation, about which there should be no question. Of course, it is possible that the state of the world will be different in the wake of the Ukraine attack, and that may mean that a more modest tightening is appropriate, but that remains to be seen. With the economy at full employment and inflation far above target, we should signal that we are moving back to neutral at a fast pace based on the performance of the economy, and a 50-basis point hike would help do that. Consequently, should the data break against us in the coming weeks, we need to be prepared to hike the policy rate by 50-basis points.”
“While I believe that we should raise the target range by 1 percentage point over the next several months, I will be assessing the incoming data to decide whether further rate increases in 2022 are warranted and, if so, at what pace they should be implemented. If high inflation persists, then I would most likely support that we continue hiking, and potentially increase the pace of tightening. If inflation moderates in the second half of the year, as I expect, and as market participants expect, then we can slow the pace of tightening or even pause.“
“Turning to balance sheet policy, as I noted, the Committee has decided to end asset purchases in early March.” “I support starting this process no later than the July FOMC meeting.” “With large caps and sizable amounts of securities maturing over the course of the next year or two, I do not see the need to consider asset sales anytime soon. However, because the Fed’s mortgage-backed securities (MBS) holdings have long maturities and are quite sizable, prepayments are unlikely to bring these holdings down to de minimis levels over the next decade. So, MBS sales could be something the Committee considers down the road to satisfy our balance sheet principles long run goal of holding primarily Treasury securities. But that is a conversation for another day. In the meantime, I would support having no caps on MBS redemptions so our MBS holdings decline as fast as prepayments allow, which would modestly assist in moving us toward an all-Treasury portfolio.”
Michelle W. Bowman – Governor – Neutral
February 21
From Fed Board (here). “Inflation is much too high. Last year I noted that inflationary pressures associated with strong demand and constrained supply could take longer to subside than many expected. Since then, those problems have persisted and inflation has broadened, reaching the highest rate that Americans have faced in forty years.” “In the near term, I expect that uncomfortably high inflation will persist at least through the first half of 2022. We may see signs of inflation easing in the second half of the year, but there is a substantial risk that high inflation could persist.”
“I support raising the federal funds rate at our next meeting in March and, if the economy evolves as I expect, additional rate increases will be appropriate in the coming months. I will be watching the data closely to judge the appropriate size of an increase at the March meeting.“
“Looking beyond this spring, my views on the appropriate pace of interest rate increases and balance sheet reduction for this year and beyond will depend on how the economy evolves. I will be particularly focused on how much progress we make on bringing down inflation.”
John C. Williams – New York Fed President – Dovish
No recent statements.
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
No recent statements.
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
February 24
From Bloomberg (here): “Asked after the speech how the Ukraine crisis will affect policy decisions, Mester said, “I don’t think it changes the need of the Fed to remove accommodation from the emergency levels” it currently has. “Geopolitical events add upside risk to the inflation forecast even as they put some downside risk to the near-term growth forecast,” Mester said. “The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the U.S. will also be a consideration in determining the appropriate pace at which to remove accommodation.” Mester said she would support a faster pace of tightening if inflation doesn’t come down as expected by mid-year. But if price increases move down quicker than expected, the removal of policy accommodation “could be slower in the second half of the year than in the first half,” she said.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
February 24
From Reuters (here): “U.S. interest rates should move higher because “underlying demand is strong. The labor market is tight. Inflation is high and broadening,” Barkin said in comments to the Maryland Chamber of Commerce. Despite the events in Ukraine, “I don’t think you are going to see much change to the underlying logic…But this is uncharted territory so we will have to see where the world goes.”
Raphael Bostic – Atlanta Fed President – Hawkish
February 24
From Reuters (here): “The data may come in perhaps more pessimistic in terms of how well we are doing on inflation and if it does I’m going to move my view, maybe 4 (hikes), and depending on how things go it may be more than that” Bostic said during a virtual event hosted by the Atlanta Fed.
Mary C. Daly – San Francisco Fed President – Dovish
February 24
From Reuters (here): “There is broad agreement that inflation is too high and the policy rate is too low,” Daly said at the Los Angeles World Affairs Council & Town Hall. It is important, she told reporters after the event, to have “a little more urgency” on raising interest rates; a rate hike every other meeting “doesn’t satisfy the moment,” she said. “Raising rates at least four times — at least — would be my preference, but it most likely will need more than that” to bring demand back into line with supply — unless consumer demand falls more than she expects, or supply chains get fixed faster than she anticipates.
“We need to demonstrate to the American people that we are committed to having that not be a perpetuating spiral,” Daly said. “The last thing you want is an economy that’s going too fast, overruns what’s possible, and then you do have to bridle it back; but that’s not where we are at,” she said. “If we run first and do everything at once… then we will have overcorrected,” she said. “We need to get policy in line, but we can’t be impatient about doing it all today.”
Charles L. Evans – Chicago Fed President – Dovish
No recent statements.
Patrick T. Harker – Philadelphia Fed President – Hawkish
February 24
From Wharton Business Daily (audio here): “There’s just tremendous uncertainty. So let’s not add more uncertainty right now. Let’s get it going with 25. And the markets by the way, are doing a lot of our work and that’s what we want”. “What we do not want to do is to step too hard on the breaks”. “I would not say ‘never’ to a 50 basis point increase. If inflation really comes out at the next reading much higher than we hoped and we are not seeing any movement downward, I would be more open to it but right now I’m not, I need to let the data speak”.
Neel Kashkari – Minneapolis – Dovish
No recent statements.