No mercy, just hikes until inflation moderates
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Powell, Waller, Williams, Bullard, Mester, Bostic, Daly, Evans, and Kashkari.
Keep in mind
All participants (including Powell and Williams) are onboard with front loading. 50bps hikes at the next two meetings are on their way. After that, the FOMC is more split: some continue to think that the Fed will need to raise rates beyond neutral to moderate inflation, and some are still concerned about overdoing it. Data will dictate the pace.
Note: the most surprising news of the week is that Kashkari (traditionally the most dovish) disclosed that at the last FOMC he wrote down seven quarter-point interest rate hikes this year. This is surprising given that Bostic (who sounded hawkish since November) disclosed he has penciled in a total of six interest rate hikes this year and two for 2023, as he worries about the effects of Russia’s invasion of Ukraine on the U.S. economy. Comment: Kashkari is another example of an FOMC member who swiftly adjusted to the incoming data. To the extent that the data will remain strong (for instance because the war in Ukraine will have less impact on US economy than expected), there is probably room for additional hikes in 2022 not currently priced in.
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 21
From Fed Board (here). “The labor market is very strong, and inflation is much too high. My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation. There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability. We are committed to restoring price stability while preserving a strong labor market.”
“Why have forecasts been so far off? In my view, an important part of the explanation is that forecasters widely underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, especially for durable goods, produced surprisingly high inflation.”
“As the magnitude and persistence of the increase in inflation became increasingly clear over the second half of last year, and as the job market recovery accelerated beyond expectations, the FOMC pivoted to progressively less accommodative monetary policy. In June, the median FOMC participant projected that the federal funds rate would remain at its effective lower bound through the end of 2022, and as the news came in, the projected policy paths shifted higher. The median projection that accompanied last week’s 25 basis point rate increase shows the federal funds rate at 1.9 percent by the end of this year and rising above its estimated longer-run normal value in 2023. The latest FOMC statement also indicates that the Committee expects to begin reducing the size of our balance sheet at a coming meeting. I believe that these policy actions and those to come will help bring inflation down near 2 percent over the next 3 years.”
From CNBC (here). “We will take the necessary steps to ensure a return to price stability,” he said. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
From Reuters (here). “The labor market is very strong, and inflation is much too high,” Powell told a National Association for Business Economics conference. “There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability.” In particular, he added, “if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
March 24
From Fed Board (here). “CoreLogic’s single family rent index rose 12 percent over the 12 months through December, and RealPage’s measure of asking rent for units in multifamily buildings rose 15 percent over the 12 months through February. Based on various measures of asking rents, some recent research suggests that the rate of rent inflation in the CPI will double in 2022. If so, rent as a component of inflation will accelerate, which has implications for monetary policy.”
Michelle W. Bowman – Governor – Neutral
No recent statements.
John C. Williams – New York Fed President – Dovish
March 25
From Bloomberg (here). “If it’s appropriate to raise interest rates by 50 basis points at a meeting, then I would think that we should do that. If it’s appropriate to do 25, then we should do that,” Williams said.
“I don’t see any reason not to do one or the other, it’s just we need to make the right decisions based on what we’re seeing in the economy.”
Williams also said that despite very high inflation readings, longer and medium-term inflation expectations “have stayed remarkably stable,” while cautioning that “policy actions have to reinforce that equilibrium.”
“While we’ve seen a shift in both current and expected monetary policy, we’ve seen very relatively small disruptions in global financial markets,” Williams said.
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
March 22
From Bloomberg (here). “The Fed needs to move aggressively to keep inflation under control,” Bullard said in an interview Tuesday on Bloomberg Television with Michael McKee. “We need to get to neutral at least so we’re not putting upward pressure on inflation during this period when we have much higher inflation than we’re used to in the U.S.”
“I would probably get to a restrictive policy so we are putting some downward pressure,” Bullard said. “History tells us that the faster we moved to that situation, the better chance we will have of moving inflation back to target and getting a boom in the U.S. economy.”
“We came out of the pandemic and we got surprised by inflation,” Bullard said. “But now what you have to do is move the policy rate up discreetly a fair amount — not to be too disruptive, but I think 50 basis points should definitely be in the mix.”
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
March 23
From Bloomberg (here). “I think we’re going to need to do some 50 basis-point moves,” Mester said on a call with reporters Wednesday. “I don’t want to presuppose every meeting from here to July, but I do think we need to be more aggressive earlier rather than later.” Mester, who votes on monetary policy this year, repeated that she favors raising rates to 2.5% by the end of the year.
From Reuters (here). “I find it appealing to front-load some of the needed increases earlier rather than later in the process because it puts policy in a better position to adjust if the economy evolves differently than expected,” Mester said in remarks prepared for delivery at John Carroll University. “If by the middle of the year, inflation is not beginning to moderate, we could speed up our rate increases. But if inflation is moving down faster than expected, we could slow the pace of rate increases in the second half of the year compared to the first half.”
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
No recent statements.
Raphael Bostic – Atlanta Fed President – Hawkish
March 23
From Reuters (here). Atlanta Federal Reserve Bank President Raphael Bostic said Monday he has penciled in a total of six interest rate hikes this year and two for 2023, fewer than most of his colleagues as he worries about the effects of Russia’s invasion of Ukraine on the U.S. economy.
“Getting the high rates of inflation under control is the top concern for me for 2022,” Bostic told the National Association for Business Economics, noting also that it is critical to address the significant imbalance between labor supply and demand.
Bostic said he sees the Fed’s neutral rate at 2.25% and cannot predict with much certainty if his own forecast on rate hikes this year will hold.
“It could go faster than that if developments occur in such a way that it seems that that’s warranted or it could go slower. I am truly observing and adapting in real time because it just seems there is so much going on,” Bostic said. “The world is continually surprising me.”
“Should demand falter in the face of economic uncertainty or removal of monetary policy accommodation, then the appropriate path may be shallower than I currently project,” Bostic said. “But there are other developments, such as shifts in supply strategies, that could mean higher costs and thus motivate a steeper policy path than I expect.”
Mary C. Daly – San Francisco Fed President – Dovish
March 23
From Bloomberg (here). “If we need to do 50, that is what we’ll do,” Daly said Wednesday in an interview with Michael McKee during the Bloomberg Equality Summit. She said she could also potentially support a 25 basis-point hike. “We’re prepared to do whatever it takes to ensure that we get price stability, which clearly no one thinks we have right now.”
“Relative to previous periods of tightening, this is quite a bit of front-loading just as the SEP has indicated,” Daly said, referring to the Fed’s quarterly Summary of Economic Projections that include the rate forecasts. Daly cautioned against moving too quickly given broad global risks. “I don’t think it’s appropriate to you, you know, really ratchet up so quickly, that we forget about the risks out there, but rather we be data dependent,” she said.
Charles L. Evans – Chicago Fed President – Dovish
March 24
From Reuters (here). “I just think that we want to be careful” not to raise interest rates too abruptly, and instead take the time to assess whether supply chains are improving and how the war in Ukraine is affecting the economy, he told the Detroit Regional Chamber.
“My own view is that, given the pressures that I see, I will be comfortable with … increasing by a quarter (of a percentage point)” at each policy meeting this year, and through March of next year, Evans said. “Maybe a 50 helps – I’m open-minded about that,” he said.
“This is a signal of more general pressure from aggregate demand on today’s impinged supply,” Evans said. “If monetary policy did not respond to these broader pressures, we would see higher inflation become embedded in inflation expectations, and we would have even harder work to do to rein it in.”
“Policymakers need to be cautious, humble, and nimble as we navigate the course ahead,” Evans said. “Monetary policy is not on a preset course” but will be decided at each Fed meeting, taking economic data, financial conditions, and risks into account.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
March 24
From Reuters (here). Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday said he has penciled in seven quarter-point interest rate hikes this year to help rein in high inflation, but warned against going too far.
“We need to adjust,” Kashkari told the Fargo-Moorhead Chamber of Commerce’s Midwest Economic Outlook Summit, because inflation is not proving as temporary as he had thought it would be. “The data just keeps coming in in that direction, and we just have to respond.”
“There’s a danger to overdoing it,” he said, if pandemic-snarled supply chains get fixed faster than expected, or workers return to the labor force in bigger numbers. “We’re going to get information.”
Kashkari said he believes the neutral interest rate level — where borrowing costs are neither braking nor bolstering growth — is about 2%, lower than the 2.4% seen by most of his colleagues.