25bps shall be. 50bps might come.
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Powell, Williams, Bullard, Mester, Barkin, Bostic, Evans, and Harker.
Keep in mind
Chair Powell cleared the path for a 25bps hike at the March meeting. In our view, Powell’s words imply that a 50bps hike was never on the table and it was a position expressed by an outlier. Nevertheless, Powell himself and other participants (Bullard, Bostic, Harker) have opened the door to more aggressive hikes (50bps) in the second half of the year if inflation does not moderate.
Using Powell’s words: “To the extent that inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”
Overall, we continue to think that the (median of the) dots plot at the March FOMC meeting will show 5 hikes (25bps each) in 2022, although the Fed staff (2021) rule implies 6 hikes (25bps each) in 2022 (conditional on our guess of the SEP forecasts for the unemployment rate and core PCE price inflation).
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
March 2
From Fed Board (here). “Inflation increased sharply last year and is now running well above our longer-run objective of 2 percent. Demand is strong, and bottlenecks and supply constraints are limiting how quickly production can respond. These supply disruptions have been larger and longer lasting than anticipated, exacerbated by waves of the virus, and price increases are now spreading to a broader range of goods and services.”
“We continue to expect inflation to decline over the course of the year as supply constraints ease and demand moderates because of the waning effects of fiscal support and the removal of monetary policy accommodation. But we are attentive to the risks of potential further upward pressure on inflation expectations and inflation itself from a number of factors. We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market.”
“The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.”
From Bloomberg (here). “I am inclined to propose and support a 25 basis-point rate hike,” Powell told the House Financial Services Committee Wednesday. “To the extent that inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”
“The bottom line is that we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war for the economy,” he said. “We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability,” Powell said
“We talk about getting to neutral, which is a neutral rate which would be somewhere between 2% and 2.5%. It may well be that we need to go higher than that. We just don’t know,” he said. “I think that it is more likely than not that we can achieve what we call a soft landing,” he said. “They are far more common in our history than is generally understood.”
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
No recent statements.
Michelle W. Bowman – Governor – Neutral
No recent statements.
John C. Williams – New York Fed President – Dovish
March 4
From Reuters (here). Williams said he expects inflation to come down later this year, but remain “well above” the central bank’s 2% target. “We have the ability to adjust interest rates higher if inflation ends up being much more persistent or staying much higher than we expect or want,” Williams said.
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
March 2
From St. Louis Fed (here). “Current U.S. monetary policy is set at peak accommodation: The policy rate is near zero and the Fed’s balance sheet has increased to nearly $9 trillion. This is putting upward pressure on inflation,” he said. “This situation calls for rapid withdrawal of policy accommodation in order to preserve the best chance for a long and durable expansion.”
“Inflation is especially hard on low- to moderate-income households, as wage gains have not kept up with inflation for many workers,” he said.
“The FOMC has recently taken some steps to be in a better position to control inflation over the forecast horizon, and this has been reflected in market pricing. This has been helpful in tightening financial conditions,” Bullard said. “However, the FOMC must now follow through with policy rate increases and balance sheet runoff or risk squandering policy credibility. In addition, the FOMC may have to move more aggressively going forward if inflation increases or does not moderate as much as expected.”
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
March 1
From CNBC (interview here). “The situation in Ukraine adds uncertainty to the economic outlook,” she told CNBC’s Steve Liesman during a live “Squawk on the Street” interview. “The uncertainty about the outlook doesn’t change the need to get inflation under control in the U.S. In fact, it actually adds upside risk that high inflation might continue, and that makes it more important to take action.”
“We’ll have more information in the second half of the year about the effect of the situation in Ukraine for the medium-run outlook in the U.S. It certainly poses some downside risks for growth,” she said. “Those assessments might be a consideration in determining the appropriate pace at which to remove accommodation later in the year, but it certainly doesn’t change the need for taking action.”
“We have to take action,” Mester said. “We can’t just say, oh, inflation is going to come down on its own. We’ve seen that isn’t going to happen.”
Fed Presidents with no voting power in 2022
Raphael Bostic – Atlanta Fed President – Hawkish
February 28
From Bloomberg (here).“I am still in favor of a 25 basis-point move at the March meeting,” Bostic said Monday in a virtual discussion with Harvard University students. “One data point that I am looking at in particular is month-to-month change in inflation. To the extent we start to see that trend down, then I will be comfortable pretty much with a 25 basis-point move. If that continues to persist at elevated levels, or even moves in the other direction, then I am really going to have to look at a 50-basis-point move for March.”
“Historically, over the last 10 years or so our moves have been in 25 basis point increments,” he said. “I was hearing and getting a sense that many expected that was the only type of move we could do. I actually think that is wrong. We need to make sure people have different levels of move in mind, and awareness of those are possibilities.”
“Every meeting is live for us,” he said. “ As data comes in, we will have to make judgments about what happens at every stage of the way.”
Mary C. Daly – San Francisco Fed President – Dovish
No recent statements.
Charles L. Evans – Chicago Fed President – Dovish
March 4
From CNBC (interview here). “I think there are a lot of business models, especially for small businesses, that are going to be challenged for the future,” the central bank official told CNBC’s Steve Liesman during a “Squawk Box” interview. “They’re going to be asked to pay higher wages, and you know if inflation is going up, it’s the real wage that’s going to equate demand and supply.”
“Obviously, we need to be moving toward a more neutral monetary policy certainly by the end of the year, so that we’re within striking distance of taking a position that would deal more forcefully with inflation,” Evans said. “I have said ‘wrong-footed’ [on policy], and I think that’s the right term. It happened very quickly.”
Patrick T. Harker – Philadelphia Fed President – Hawkish
March 3
From MarketPlace (podcast and transcript here). “I am supportive of moving methodically on raising the Fed funds rate. I am supportive of doing that with a 25 basis point rise this month, and then can continuing to move forward with increases. But, do it in a way that we recognize the risks; the global risks that have now just gotten worse because of the Ukraine situation. I think we have to be careful here, but at the same time, we need to move the rates up.”
” If we don’t see any movement downward on inflation, that is inflation continues to be as high as it has been, then I could be supportive of a 50 basis point rise in the future — but not at this meeting. I think we start with 25, let things play out, and see how inflation reacts — and the other risks that we’re dealing with.“
Neel Kashkari – Minneapolis – Dovish
No recent statements.