Lots of noise, no clear sound from the orchestra
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.
Keep in mind
Confusing communication this week. Waller and Bullard argued that the Fed is not behind the curve thanks to forward guidance (for the record, Bullard argued almost the opposite about two weeks ago). Barkin did not rule out a 75bps hike. Finally, Kashkari said that rates might or not go above neutral depending on supply-chain issues.
To sum up: lots of noise with no clear sound from the orchestra.
In our view we can safely disregard the post FOMC meeting statements and stick to Powell’s words: 50bps is the new 25bps, until there will be clear signs that inflation has moderated.
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
No recent statements. (see our ad-hoc email post FOMC for press conferences and Q&As)
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
May 6
From Fed Board (here). “When inflation broke loose in March 2021, even though I had expected it to run above 2 percent in 2021 and 2022, I never thought it would reach the very high levels we have seen in recent months. Indeed, I expected it would eventually fade, due to the nature of these shocks.”
“revisions to changes in payroll employment since late last summer have been quite substantial. From the original reports to the current estimate, the change in payroll employment has been revised up nearly 1.5 million. As the revisions came in, a consensus grew that the labor market was much stronger than we originally thought. If we knew then what we know now, I believe the Committee would have accelerated tapering and raised rates sooner. But no one knew, and that’s the nature of making monetary policy in real time.”
“Finally, if one believes we were behind the curve in 2021, how far behind were we? In a world of forward guidance, one simply cannot look at the policy rate to judge the stance of policy. Even though we did not actually move the policy rate in 2021, we used forward guidance to start raising market rates starting with the September 2021 statement, which indicated tapering was coming soon. The 2-year Treasury yield, which I view as a good market indicator of our policy stance, went from approximately 25 basis points in late September 2021 to 75 basis points by late December. That is the equivalent, in my mind, of two 25 basis point policy rate hikes for impacting the financial markets. When looked at this way, how far behind the curve could we have possibly been if, using forward guidance, one views rate hikes effectively beginning in September 2021?”
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
May 6
From Reuters (here). Speaking at the same Stanford University conference, titled “How monetary policy got behind the curve,” St. Louis Fed President James Bullard argued that the Fed is “not as far behind the curve as you might have thought.”
Bullard said he agrees, calling inflation “far too high,” and call for ratesto rise “expeditiously,” toperhaps 3.6%, to bring inflation under control. But he noted that markets are already pricing much of that increase in.
From Bloomberg (here). “Credible forward guidance means market interest rates have increased substantially in advance of tangible Fed action,” Bullard said in remarks prepared for a conference organized by the Hoover Institution at Stanford University. “This provides another definition of ‘behind the curve,’ and the Fed is not as far behind based on this definition.”
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
May 6
From Bloomberg (here). “I never rule anything out. So I think anything would be on the table,” Richmond Fed President Thomas Barkin told Market News International in a podcast published on Friday. “I’ll just say our pace is pretty accelerated right now, and so if you go to the pace that the chairman suggested, that’s a pretty accelerated pace.”
“As imperfect as inflation expectation assessments are, if you start convincing yourself that inflation expectations are starting to move, that’s to me the strongest case to try to move faster,” said Barkin, who does not vote on policy this year. “Demand is very strong and inflation is very high. Both are pointing in the direction that you can raise rates and you can raise rates relatively quickly.”
Raphael Bostic – Atlanta Fed President – Neutral
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
May 6
From Bloomberg (here). Minneapolis Fed President Neel Kashkari, probably the central bank’s most dovish official, said earlier on Friday that rates may have to go above neutral unless supply-chain pressures pushing up prices abate.
“Unfortunately, the news from the war in Ukraine and the Covid lockdowns in China are likely delaying any normalizing of supply chains,” Kashkari said in an essay posted on the website Medium.
“If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down,” he wrote. “If they don’t unwind quickly or if the economy really is in a higher-pressure equilibrium, then we will likely have to push long-term real rates to a contractionary stance to bring supply and demand into balance.”
“Right now, by most measures, the job market is very strong, and we’re at a time of very high inflation,” Kashkari said later during a moderated question-and-answer session at the University of Minnesota. “We know we have to bring inflation back down to 2%, and if the job market softened a little bit, that’s not much of a trade-off.”