50bps now. 75bps (maybe) after the summer
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, Barkin, Bostic, Daly, and Kashkari.
Keep in mind
We have heard from Powell last Thursday. The relevant news is that the Chair did not rule out a 75bps hike (if things get worse than anticipated) and sounded determined to lower inflation at any cost, especially if expectations start looking de-anchored. Using Powell’s words, “we need to get back to 2% inflation, that’s the main thing. The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will.”.
(Please note that the Chair talked before the release of the Q2 SPF on Friday so in a sense things have already gone worse than expected in our view)
Williams and other FOMC participants seem on board with the Chair. Translated: 50bps hike should be on an autopilot for the next 2 meetings. After that, the Fed remains data dependent and nothing can be ruled out, especially given the evidence on long-term expectations (as Barking put it: “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”).
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
May 12
From MarketPlace (here). “What we can control is demand, we can’t really affect supply with our policies. And supply is a big part of the story here. But more than that, there are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so. So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”
“I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like. And that’s just people losing the value of their paycheck to high inflation and, ultimately, we’d have to go through a much deeper downturn. And so we really need to avoid that.”
“we need to get back to 2% inflation, that’s the main thing. The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will.”
“I said we weren’t actively considering that [75 bps hike, ndr]. But I said what we were actively considering, and this is just a factual recitation of what happened at the meeting, was a 50-basis point increase, that’s a half a percentage point increase, the first one in more than 20 years. And that we thought that if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis point increases at the next two meetings, so. But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.“
“I’m gonna go with what I really am thinking is, “get inflation back under control.””
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
May 10
From Reuters (here). “It’s time to raise rates now when the economy can take it,” Waller told the Economic Club of Minnesota. “Front-load it, get it done, and then we can judge how the economy is proceeding later, and if we have to do more, we’re going to do more.”
Waller was asked why, if inflation is as high as it is, the Fed isn’t raising rates even faster.
“It’s not a shock-and-awe Volcker moment,” Waller said, referring to former Fed Chair Paul Volcker, whose battle with inflation in the early 1980s involved sharp and unexpected rate increases of as much as four percentage points at a time, and sent the economy into a sharp recession.
Back then, Waller said, inflation had been building for years and the public and financial markets had little faith in the Fed’s ability to control it.
The current bout of inflation has only been running too high for about a year, he said.
“We are on it already, and there’s no backing off,” Waller said. “And the other advantage is the labor market, as I said, is so strong, the economy is doing so well, this is the time to hit it.”
Michelle W. Bowman – Governor – Neutral
No recent statements.
John C. Williams – New York Fed President – Dovish
May 10
From Reuters (here). “I do think as a base case of thinking, 50 basis point increases makes sense exactly as Chair Powell laid out,” Williams told reporters following a speech to an economics conference organized by Germany’s central bank in Eltville am Rhein, Germany. “We are removing accommodation pretty quickly…and that gives us a little space to move in something like the 50 basis point increment at the next couple of meetings.”
“When I think of a soft landing, it’s really a matter of, yes we could see growth below trend for a while and we definitely could see unemployment moving up somewhat but not in a huge way… I think that’s the challenge.”
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
May 11
From Yahoo Finance (here). “I don’t think we want to emphasize one report too much, but my takeaway is that inflation is broader and more persistent than many have thought and that the Fed will have to act in order to keep inflation under control. And we’ve got a plan in place, which is, you know, 50 basis points at the last meeting and teeing that up for future meetings as well. I do think we need to get to a higher level of the policy rate to control especially the persistent part of the inflation process.”
“I think that’s [50bps hike] a good benchmark for now. And, you know, I think we are in — it is a good plan right now. I do think we need to get above neutral by the end of the year. I have been advocating just as a kind of number to put out there, a goal of 3.5% on the policy rate by the end of the year. I think we are going to have to do more than just get to neutral. We are going to have to go above neutral in order to put downward pressure on the persistent component of this inflation.“
“That’s [75bps] not my base case. So I think we’ve got a good plan in place and the committee is, based on public comments anyway from my colleagues, has coalesced around a plan of 50 basis points per meeting. So I think we can proceed on that.“
“Yeah, I mean, I think it’s more state-contingent than this. So we want to take it one meeting at a time. Let’s see how the data comes in. It’s possible inflation could moderate a lot. It’s possible the real economy could take twists and turns. And so I don’t think we want to be promising today what we’re going to do in December. But I think right now, I think we’re on a good path near term and then we can adjust as we go along.”
“I don’t think recession risk is that high right now for the US economy. Of course you always face the possibility that a big shock will hit. And that has happened. And you know, obviously, the pandemic was like that, even the global financial crisis. So you do have these kinds of possibilities. But I would say that our probability of recession is not particularly elevated at this time. And if you look at models that try to predict, you know, recession or give you recession probabilities, they’re still pretty low.”
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
May 13
From Bloomberg (here). “Unless there are some big surprises, I expect it to be appropriate to raise the policy rate another 50 basis points at each of our next two meetings,” Mester said Friday in prepared remarks for a virtual appearance at the International Research Forum on Monetary Policy.
“If by the September FOMC meeting, the monthly readings on inflation provide compelling evidence that inflation is moving down, then the pace of rate increases could slow, but if inflation has failed to moderate, then a faster pace of rate increases may be necessary,” Mester said.
She said she’d like to see “several months” of sustained declines in inflation readings before concluding that prices have peaked.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
May 10
From FA (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
May 10
From Bloomberg (here). “We are going to get our policy rate certainly to a neutral space where we are no longer providing accommodation,” Bostic told the World Affairs Council of Jacksonville, Florida, Wednesday. “If inflation stays at high levels or levels that are too high — by too high, it’s really not moving back towards our 2% target — then I am going to be supporting moving more.”
Bostic said he supports Powell’s intention that the Federal Open Market Committee plans to raise rates by 50 basis points in June and July following last week’s move as well as shrinking the bloated balance sheet by about $1 trillion a year. He didn’t rule out a 75 basis-point move in the future, and said a debate on the future sale of the Fed’s mortgage-backed securities holdings was warranted.
Mary C. Daly – San Francisco Fed President – Dovish
May 12
From Bloomberg (here). “Going up in 50-basis-point increments to me makes quite a bit of sense and there’s no reason right now that I see in the economy to pause on doing that in the next couple of meetings,” Daly said in an interview Thursday with Bloomberg News.
She added that a 75-basis-point increase, which has been the subject of speculation as an option to curb surging inflation, is “not a primary consideration.”
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 9
From CNBC (here). “I’m confident we are going to get inflation back down to our 2% target,” he told CNBC’s “Squawk Box” in a live interview. “But I am not yet confident on how much of that burden we’re going to have to carry versus getting help from the supply side.”
“So this is a difficult challenge I think for all of us, but we also know that letting inflation stay at these very high levels, it’s not good for anybody and it’s not good for the economy’s long-run potential for anybody across the income distribution,” he added.
May 13
From Reuters (here).“I’m confident that my colleagues and I have the conviction to do what we need to do to bring inflation back down,” Kashkari said at the start of a conference on energy and inflation co-hosted by the Dallas and Minneapolis Fed banks. “I hope we have to do less, and we’ll only be able to do less if more supply comes on line.”