Firing At Will
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Brainard, Bullard, George, Barkin, Bostic, Daly, Evans, and Harker.
Keep in mind
This week Vice Chair Brainard delivered a speech that started with a quotation of Paul Volcker (runaway inflation “would be the greatest threat to the continuing growth of the economy… and ultimately, to employment.”). This tells us a lot about the current mood at the FOMC table.
Several participants confirmed their willingness to hike 50bps at the upcoming May meeting. Brainard confirmed that QT will be announced at the May meeting (“starting to reduce the balance sheet at a rapid pace as soon as our May meeting”).
FOMC is firing at will. We expect this to continue until inflation moderates.
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
April 5
From Fed Board (here). “High inflation places a burden on working families who are concerned about how far their paychecks will stretch as well as seniors living on fixed incomes.” “Core inflation is also elevated, and inflationary pressures have been broadening out.”
“The global commodity supply shock associated with Russia’s actions skews inflation risks to the upside and is expected to exacerbate high prices for gasoline and food as well as supply chain bottlenecks in goods sectors. The recent COVID lockdowns in China are also likely to extend bottlenecks.”
“It is of paramount importance to get inflation down. Accordingly, the Committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting. Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19.”
“I expect the combined effect of rate increases and balance sheet reduction to bring the stance of policy to a more neutral position later this year, with the full extent of additional tightening over time dependent on how the outlook for inflation and employment evolves.”
“Every indicator of longer-term inflation expectations lies within the range of historical values consistent with our 2 percent target. On the other side, I am attentive to signals from the yield curve at different horizons and from other data that might suggest increased downside risks to activity. Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted. We are committed to bringing inflation back down to its 2 percent target, recognizing that stable low inflation is vital to maintaining a strong economy and a labor market that works for everyone.”
Christopher J. Waller – Governor – Hawkish
No recent statements.
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
April 7
From St. Louis Fed (here). Bullard said that U.S. inflation is exceptionally high and is comparable to inflation in 1974 and 1983. Standard Taylor-type monetary policy rules, even if based on a minimum interpretation of the persistent component of inflation, still recommend substantial increases in the policy rate, he said. This provides one definition of “behind the curve,” and the Fed is far behind based on this definition, he noted.
“However, all is not lost. Modern central banks are more credible than their 1970s counterparts and use forward guidance,” he said. “Credible forward guidance means market interest rates have increased substantially in advance of tangible Fed action. This provides another definition of ‘behind the curve,’ and the Fed is not as far behind based on this definition.”
“The contrast between the 1974 and 1983 experiences convinced many that it was important to avoid getting ‘behind the curve’ on inflation,” he said.
The recommended policy rate from Bullard’s simple Taylor-type policy rule calculation is 3.5%, while the current value of the policy rate is 37.5 basis points. “One concludes that the current policy rate is too low by about 300 basis points, according to this calculation,” Bullard said.
Regarding yield curve issues, Bullard noted that the nominal yield curve based on the 10-year Treasury yield minus 2-year Treasury yield has been inverted in some recent trading sessions. “This market-based signal has been an accurate predictor of recessions in the postwar data, and so it must be taken seriously,” he said. However, he added that the 10-year yield may currently be somewhat depressed due to several factors.
Esther L. George – Kansas City Fed President – Hawkish
April 5
From Bloomberg (here, interview here). “I think 50 basis points is going to be an option that we will have to consider, along with other things,” George said in a Bloomberg News interview with Michael McKee on Tuesday. “We have to be very deliberate and intentional as we remove this accommodation. I am very focused on thinking about how the balance sheet moves in conjunction with policy-rate increases.”
“I think if you just look at where we are today, you might say we will have to go above neutral to bring inflation down,” George said. “But there is a long time between now and the end of the year to see how the economy unfolds.”
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
April 6
From Bloomberg (here). Richmond Fed President Thomas Barkin separately told the Central Maryland Chamber on Wednesday that officials could move faster on rate increases if needed to get inflation under control. “We have moved at a 50-basis-point clip in the past and we could certainly do that again if it is necessary to prevent inflation expectations from unanchoring,” Barkin said. “I’d say it is a judgment call.”
Raphael Bostic – Atlanta Fed President – Hawkish
April 7
From Reuters (here). “It’s time that we get off of our emergency stance — I think it’s really appropriate that we move our policy closer to a neutral position — but I think we need to do it in a measured way,” Bostic told a Chicago Fed virtual conference on economic mobility.
Mary C. Daly – San Francisco Fed President – Dovish
April 5
From CNBC (here). San Francisco Fed President Mary Daly is worried about inflation, telling an audience Tuesday that the high cost of living is causing a heavy burden on society. “I understand that inflation is as harmful as not having a job,” she said, “that if you have a job and you can’t pay your bills, or I feel like I can’t save for what I need to do, then that’s keeping you up at night.”
While she didn’t specify how quickly she thinks the Fed will move, Daly said the efforts will have an impact.
“It will mean interest rates go up, making it harder to finance a car or a business,” she said.
“Most Americans, most people, most businesses, hopefully people in tribal nations, you all have confidence that we’re not going to let this go forever,” she added. “But if you don’t have that confidence, let me give it to you.”
Even with the higher rates, Daly said, she doesn’t see the economy entering recession, though she expects things to slow.
Charles L. Evans – Chicago Fed President – Dovish
April 7
From Reuters (here). “I’m optimistic that we can get to neutral, look around, and find that we’re not necessarily that far from where we need to go.”
Patrick T. Harker – Philadelphia Fed President – Hawkish
April 6
From CNBC (here). “Inflation is running far too high, and I am acutely concerned about this,” Harker told the Delaware State Chamber of Commerce.
“The bottom line is that generous fiscal policies, supply chain disruptions and accommodative monetary policy have pushed inflation far higher than I — and my colleagues on the [Federal Open Market Committee] — are comfortable with,” he said. “I’m also worried that inflation expectations could become unmoored.”
Neel Kashkari – Minneapolis – Dovish
No recent statements.