Another 75bps, then lost forward guidance
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
Since the June FOMC we have heard from: Waller, Bullard, George, Bostic, and Kashkari.
Keep in mind
All participants who have spoken after the June FOMC meeting are supportive of another 75bps move in July. After that, the FOMC has returned to be “data dependent”, which in the current environment sounds like “the Fed hopes to get some help from supply chains but nobody knows if and when that will happen”. The issue, in our view, is that by doing so, the FOMC has increased uncertainty (as Kansas City Fed President George said, see below her words) and lost part of its forward guidance. At the moment, it seems that it will take a lot (“clear and convincing signs” of inflation fading) for the Fed to change tone so we continue to assume the FOMC will remain very hawkish during the summer.
FOMC-meter
Dovish
Leal Brainard
John Williams
Charles Evans
Mary C. Daly
Neel Kashkari
Neutral
Jerome H. Powell
Michelle W. Bowman
Philip N. Jefferson
Lisa D. Cook
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.
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
June 18
From Reuters (here). “If the data comes in as I expect, I will support a similar-sized move at our July meeting,” Waller told a Society for Computational Economics conference in Dallas. “The Fed is ‘all in’ on re-establishing price stability.”
Inflation, as measured by the Personal Consumption Expenditures Price Index, is running at more than three times that level.
“That’s the most important thing I’m worried about,” Waller said on Saturday, adding that moving rates quickly up to the neutral level and into restrictive territory is necessary to slow demand and put a check on inflation.
Waller also said there are limits to how fast the Fed can move: markets would have a “heart attack” if the central bank raised rates by a full percentage point in a single move.
From Bloomberg (here). “I don’t care what’s causing inflation, it’s too high, it’s my job to get it down,” Waller said during a question and answer session after his prepared remarks. “The higher rates and the path that we’re putting them on, it’s going to put downward pressure on demand across all sectors.”
“Right now we’ve not seen inflation like this in 40 years and that’s the most important thing you’ve got to worry about.”
Prepared remarks from Fed Board (here).
Michelle W. Bowman – Governor – Neutral
No recent statements.
Lisa D. Cook – Governor – Neutral
No recent statements.
Philip N. Jefferson – 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
June 17
From Reuters (here). Speaking in Barcelona on Friday, St. Louis Fed President James Bullard said he believes both the Fed and the European Central Bank “have considerable credibility, suggesting that a soft landing is feasible” on both continents.
He said that differed from the 1980s when Fed’s fight against high inflation under former Fed Chair Paul Volcker triggered two recessions.
“The Volcker disinflation was costly, but it was not credible initially – Volcker had to earn credibility,” said Bullard.
Esther L. George – Kansas City Fed President – Hawkish
June 17
From Bloomberg (here). “The speed with which we adjust the policy rate is important,” George said in a statement Friday released by the bank. “Policy changes affect the economy with a lag, and significant and abrupt changes can be unsettling to households and small businesses as they make necessary adjustments.”
“I viewed that move [75bps hike, ndr] as adding to policy uncertainty simultaneous with the start of balance sheet runoff,” George said. “With high inflation and a tight economy, the case for continuing to remove policy accommodation is clear-cut. Inflation began building over the past year and has shown no meaningful signs of deceleration.”
“For some time, I have advocated for stopping asset purchases and beginning the runoff of the $9 trillion balance sheet and returning interest rates to more normal levels,” she added.
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
No recent statements.
Raphael Bostic – Atlanta Fed President – Neutral
June 17
From Reuters (here). Atlanta Federal Reserve Bank President Raphael Bostic on Friday said he supported the U.S. central bank’s 0.75 percentage point interest-rate hike this week, adding that supply chain fixes have been slow in coming.
“That means that we’re going to have to be more muscular in our policies,” Bostic told American Public Media’s “Marketplace” radio program, adding that he hopes supply chain logjams will ease up in the summer.
“We’re attacking inflation and we’re going to do all that we can to get it back down to a more normal level, which for us has got to be 2%. We’ll do whatever it takes to make that happen,” he said.
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
June 17
From Reuters (here). Minneapolis Fed President Neel Kashkari, in an essay published on the regional bank’s website Friday, said he supported this week’s rate decision and could support another similar-sized hike in July. But he added the Fed should be “cautious”.
“A prudent strategy might be, after the July meeting, to simply continue with 50-basis-point hikes until inflation is well on its way down to 2 percent,” Kashkari said. “Taking a steady approach to driving long real rates higher might help us avoid tightening more than is necessary to restore price stability, while ensuring that we do enough.” he added.