50bps is a done deal, 75bps is too much
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Powell, Bullard, George, Bostic, Daly, Evans, and Kashkari.
Keep in mind
Chair Powell confirmed that 50bps hike “will be one the table for the May meeting”, which -in his jargon- is way of endorsing it. Other participants (including Daly, Mester, and Bostic) either confirmed their preference to get to neutral “expeditiously” or explicitly talked about 50bps hikes. The only participant who expressed some doubts about the path of the FF rates is Bostic who seems concerned about the impact on growth (for the record: Bostic has been an “early hawk” in this cycle but he switched to more dovish statements in recent weeks. In any case, Bostic has no voting power in 2022). Finally, Bullard mentioned the idea of a 75bps hike but he specified it is not his baseline scenario (Mester pushed back as well on the idea of a 75bps hike).
All told, we can summarize the week as following: 50bps is a done deal, 75bps is too much.
FOMC-meter
Dovish
Leal Brainard
John Williams
Charles Evans
Mary C. Daly
Neel Kashkari
Neutral
Jerome H. Powell
Michelle W. Bowman
Thomas I. Barkin
Raphael Bostic
Hawkish
Christopher Waller
James Bullard
Esther L. George
Loretta J. Mester
Patrick T. Harker
Note: FOMC voters are bolded.
Recent FOMC participants' statements - most recent statements in blue
Jerome H. Powell – Chair – Neutral
April 21
From Bloomberg (here). “I would say that 50 basis points will be on the table for the May meeting,” Powell said at an IMF-hosted panel on Thursday in Washington that he shared with European Central Bank President Christine Lagarde and other officials. He said demand for workers is “too hot — you know, it is unsustainably hot.”
Powell also reinforced expectations for another half-point increase in June, by citing minutes from last month’s policy meeting that said many officials had noted “one or more” 50 basis-point hikes could be appropriate to curb the hottest inflation in four decades. “There’s something in the idea of front-end loading” moves if appropriate, Powell said — “so that points in the direction of 50 basis points being on the table.”
From WSJ (here). The Fed is trying to engineer a so-called soft landing in which it slows growth enough to bring down inflation, but not so aggressively that the economy slips into a recession. “I don’t think you’ll hear anyone at the Fed say that that’s straightforward or easy. It’s going to be very challenging,” Mr. Powell said.
“Markets are processing what we’re seeing. They’re reacting appropriately, generally,” Mr. Powell said, though he said he wasn’t endorsing any particular market pricing. Still, he concluded, “Fifty basis points will be on the table for the May meeting.”
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
No recent statements.
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
April 18
From Reuters (here). “What we need to do right now is get expeditiously to neutral and then go from there,” Bullard said at a virtual event held by the Council on Foreign Relations. But with economic growth expected to remain above its potential, he added, the economy won’t fall into recession and the unemployment rate, now at 3.6%, will likely drop below 3% this year.
From Bloomberg (here). “More than 50 basis points is not my base case at this point,” Bullard said in a virtual presentation to the Council on Foreign Relations on Monday, adding the Fed under Alan Greenspan did such a hike in 1994 leading to a decade-long expansion. “I wouldn’t rule it out, but it is not my base case here.”
“We want to get to neutral expeditiously, I guess is the word of the day,” he said, repeating a word used by a number of colleagues. “I’ve even said we want to get above neutral as early as the third quarter and try to put further downward pressure on inflation at that point.”
April 21
From St. Louis Fed (here). During a presentation at Princeton University, St. Louis Fed President Jim Bullard presented two interpretations of whether the Federal Reserve is “behind the curve” on raising its policy rate relative to high inflation. Bullard said that U.S. inflation is exceptionally high and 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.
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
April 22
From CNBC (here). “My own view is we don’t need to go there at this point,” Mester said on CNBC’s “Closing Bell” when asked by host Sara Eisen about the 75-basis-point move. “I’d rather be more deliberative and more intentional about what we’re planning to do.”
“I would support at this point where the economy is a 50 basis point rise and maybe a few more to get to that 2.5% level by the end of the year,” Mester said. “I think that’s a better path. … I kind of favor this methodical approach, rather than a shock of a 75 basis point [increase]. I don’t think it’s needed for what we’re trying to do with our policy.”
“We are trying to let the markets know where we see the economy going and why monetary policy needs to move off of that real extraordinary level of accommodation that was needed at the start of the pandemic,” she said.
“Of course, our goal is to do that in a way that sustains the expansion and sustains healthy labor markets,” Mester added.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
No recent statements.
Raphael Bostic – Atlanta Fed President – Neutral
April 19
From CNBC (here). “I think I’m in the same areas as my colleagues philosophically,” he told CNBC’s Sara Eisen in a “Closing Bell” interview. “I think it’s really important that we get to neutral and do that in an expeditious way.”
“I really have us looking at one and three-quarters by the end of the year, but it could be slower depending on how the economy evolves and we do see greater weakening than I’m seeing in my baseline model,” he said. “This is one reason why I’m reluctant to really declare that we want to go a long way beyond our neutral place, because that may be more hikes than are warranted given sort of the economic environment.”
Bostic said the Fed “needs to be cautious as we move forward.” Inflation could be topping, he said, though he noted that real incomes adjusted for the cost of living have been falling.
“We do need to get away from zero, I think zero is lower than we should be right now,” he said. “But at the same time, we need to just pay attention.”
Mary C. Daly – San Francisco Fed President – Dovish
April 20
From Bloomberg (here). “I see an expeditious march to neutral by the end of the year as a prudent path,” Daly said Wednesday in a speech in Las Vegas, noting that most forecasters see that level lying around 2.5%. “Moving purposefully to a more neutral stance that does not stimulate the economy is the top priority.”
“The case for a 50 basis-point adjustment is now complete,” Daly told reporters following the speech. “The economy is resilient; it can handle these adjustments.”
Removing accommodative policy should help curb the inflation rate, which is at the highest in four decades, while rebalancing supply-and-demand conditions throughout the economy, she said, adding: “What I’m busy thinking about are three things: inflation, inflation, inflation.”
Charles L. Evans – Chicago Fed President – Dovish
April 19
From Reuters (here). Chicago Federal Reserve Bank President Charles Evans on Tuesday said the Fed could raise its policy target range to 2.25%-2.5% by year end and then take stock of the state of the economy, but if inflation remains high will likely need to hike rates further.
“Probably we are going beyond neutral — I mean, that’s my expectation,” Evans said at the Economic Club of New York. Most Fed policymakers estimate neutral to be somewhere between 2.25% and 2.5%.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
April 20
From Reuters (here). Speaking at an event at Luther College in Decorah, Iowa, Kashkari said in the best case scenario, the pandemic fades into the background, supply chains recover and more supply comes back on line. That would help reduce upward pressure on consumer prices, which rose 8.5% in March, the fastest pace since late 1981. If that doesn’t happen, Kashkari said, “then our job will get harder … and we are going to have to do more, through our monetary policy tools, to bring inflation back down.”