Committed to deliver, no matter if the yield curve inverts.
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Waller, Bullard, Barkin, and Kashkari (please see our ad-hoc e-mail for Powell conference press).
Keep in mind
FOMC participants appear more reactive to incoming data than recent past and more willing to swiftly change their minds (including to 50bps hikes). As an example, on February 24 (that is, just before the March FOMC meeting) Fed Bostic hinted that he was oriented towards 4 hikes in 2022 but open to change his mind according to the data. However, by looking at the post-FOMC dots plot, in our view Bostic has written down at least 7 hikes (possibly 8) in 2022 even if we got only one CPI reading between his last public speech and the FOMC.
The participants who have spoken after the FOMC reiterated the message: they are ready to act and they will not hesitate. The impression is that the FOMC is so committed that (to our surprise) does not seem to care at all about inverting the yield curve.
For the record, Bostic’s words on February 24 were: “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” (from Reuters here).
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
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
March 18
From CNBC (interview here). “I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year” Waller said. “So in that sense, the way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future.”
“We’re in a different place than we were before,” he said. “We have a much bigger balance sheet, the economy’s in a much different position. Inflation is raging. So, we’re in a position where we could actually draw down a large amount of liquidity out of the system without really doing much damage.”
“The data’s basically screaming at us to go 50, but the geopolitical events were telling you to go forward with caution,” he said. “So those two factors combined pushed me off of advocating for a 50 basis point hike and supporting the 25-point hike that we enacted.”
Michelle W. Bowman – Governor – Neutral
No recent statements.
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
March 18
From St. Louis Fed (here). “I dissented with the Federal Open Market Committee (FOMC) decision announced on March 16, 2022, to raise the target range for the federal funds rate by 25 basis points to 0.25% to 0.50%. In my view, raising the target range to 0.50% to 0.75% and implementing a plan for reducing the size of the Fed’s balance sheet would have been more appropriate actions.”
“The combination of strong real economic performance and unexpectedly high inflation means that the Committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation. Moreover, U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower. The Committee will have to move quickly to address this situation or risk losing credibility on its inflation target.”
“I recommended that the Committee try to achieve a level of the policy rate above 3% this year. This would quickly adjust the policy rate to a more appropriate level for the current circumstances.“
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
No recent statements.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
March 18
From Richmond Fed (here). “Some worry that raising rates to control inflation necessarily drives the economy into a recession. And with the surge in energy prices since the Ukraine invasion, some even raise the foottopic of stagflation — a word from the 70s. The rate path we announced this week shouldn’t drive economic decline. We are still far from the level of rates that constrains the economy”
“Prior to our meeting, there was much debate about whether the Fed should move faster. We have moved at a 50-basis point clip in the past, and we certainly could do so again if we start to believe that is necessary to prevent inflation expectations from unanchoring. But setting the right pace for rate increases is a balancing act — we normalize rates to contain inflation, but if we overcorrect, we can negatively impact employment, which is the other part of our dual mandate.”
“There is a reasonable amount of debate in the literature and in the financial markets about the impact of balance sheet reduction. For me, it’s pretty simple: Our purchases reduced rates in a modest fashion; our reductions should have a symmetric effect and increase medium-term rates modestly, thereby supporting our desired rate trajectory.”
Raphael Bostic – Atlanta Fed President – Hawkish
No recent statements.
Mary C. Daly – San Francisco Fed President – Dovish
No recent statements.
Charles L. Evans – Chicago Fed President – Dovish
No recent statements.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
March 18
From Minneapolis Fed (here). “In the September 2021 Summary of Economic Projections (SEP), I estimated inflation would be 4.2 percent for 2021 and 1.8 percent for 2022. Actual inflation for 2021 ended up being 5.8 percent, and I just increased my forecast this week to 4.5 percent for 2022.”
“Making Sense of High Inflation – So how do I put this all together? The first explanation is that these demand and supply imbalances are in fact still transitory but will simply take substantially longer to normalize than I had expected (and longer than we can tolerate without running the risk of destabilizing inflation expectations). The second explanation is that the massive fiscal and monetary intervention in response to COVID-19 has moved the economy to a higher-pressure, higher-inflation equilibrium, with people earning more and spending more than before. We do know that the wealth effect is a real phenomenon, and both the stock market and house prices are up roughly 30 percent relative to pre-pandemic levels; even households who don’t own stocks or homes have on average stronger balance sheets than before the pandemic. Perhaps this is leading people to be more confident and simply spend more. Either way, the FOMC must act to bring the economy back into balance.“
“If my first explanation of the enduring high inflation noted above is right (that it will still prove transitory but take much longer than expected), then I believe the FOMC will need to remove accommodation and get modestly above neutral while the inflationary dynamics unwind. However, if my second explanation noted above is right (that the economy is in a high-pressure, high-inflation equilibrium), then the FOMC will need to act more aggressively and bring policy to a contractionary stance in order to move the economy back to an equilibrium consistent with our 2 percent inflation target. Over the course of this year, while we are moving to what I expect will be a neutral policy stance, we will get information to help us determine how much further we may need to go.”