Unconditional
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
In the last week we have heard from: Powell, Bowman, Bullard, Mester, Barkin, Daly, Evans, and Harker.
Keep in mind
Recent communication of FOMC participants confirm model-based forecasts of the US economy: in order to lower inflation, the economy might need to go through a period of higher unemployment and lower growth. No participant is openly forecasting a recession but some are now expecting a period of below trend growth (see for instance, Mester’s words). All participants are strongly committed to reduce inflation and they are well aware of the trade-offs. As Powell said, the commitment of the Fed to reducing inflation is “unconditional”.
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.
Jerome H. Powell – Chair – Neutral
June 24
From Reuters (here). The Federal Reserve’s commitment to reining in 40-year-high inflation is “unconditional,” U.S. central bank chief Jerome Powell told lawmakers on Thursday, even as he acknowledged that sharply higher interest rates may push up unemployment.
“We really need to restore price stability … because without that we’re not going to be able to have a sustained period of maximum employment where the benefits are spread very widely,” Powell told the U.S. House of Representatives Financial Services Committee. “It’s something that we need to do, we must do.”
On Wednesday, Powell told the U.S. Senate Banking Committee that the Fed was not trying to provoke a recession but that one was “certainly a possibility,” with recent global events, specifically the Ukraine war and COVID-19 pandemic, making it more difficult to tame inflation without inducing a downturn.
“We don’t have precision tools,” he said, “so there is a risk that unemployment would move up, from what is historically a low level though. A labor market with 4.1% or 4.3% unemployment is still a very strong labor market.”
At the same time, however, Powell said a recession is not inevitable, as even former Fed colleagues have claimed; he expects U.S. economic growth to pick up in the second half of this year after a sluggish start to 2022.
Over the course of the three-hour session, Powell was asked about the possibility of raising the Fed’s 2% inflation target, a solution proposed in some circles as one way to give the central bank more scope to boost employment. His response was definitive: “That’s just not something we would do.”
Powell was equally dismissive of the possibility of cutting interest rates in a hypothetical situation where unemployment was rising and inflation remained high. “We can’t fail on this: we really have to get inflation down to 2%,” he said.
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
No recent statements.
Michelle W. Bowman – Governor – Neutral
June 23
Speech from Fed Board (here). “Inflation that continues at these levels is a threat to sustained employment growth and to the overall health of the economy.”
“In the face of inflation that continues to be much too high and in light of the recent high readings, the FOMC raised the federal funds rate by 75 basis points at our most recent meeting last week. That increase followed two rate hikes totaling 75 basis points earlier this year, and we indicated that further increases will likely be appropriate in the months ahead. On June 1, the Fed took a separate step to tighten monetary policy by beginning to reduce its large balance sheet of securities holdings. I strongly supported the FOMC’s decision last week, and I expect to support additional rate increases until we see significant progress toward bringing inflation down. Based on current inflation readings, I expect that an additional rate increase of 75 basis points will be appropriate at our next meeting as well as increases of at least 50 basis points in the next few subsequent meetings, as long as the incoming data support them. Depending on how the economy evolves, further increases in the target range for the federal funds rate may be needed after that.”
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 24
From Bloomberg (here). “I actually think we will be fine,” Bullard said in a speech in Zurich Friday. “It is a little early to have this debate about recession probabilities in the US.”
“Interest-rate increases will slow down the economy but will probably slow down to more of a trend pace of growth as opposed to going below trend,” he added in the panel discussion hosted by UBS. “I don’t think this is a huge slowing. I think it is a moderate slowing in the economy.”
“Households seem to be in great position to spend going forward,” he said. “They are flush. They have still $3.5 trillion of kind of Covid aid that is more or less unspent” which is “something on the order of 10% of GDP still sitting in people’s bank accounts.”
The labor market “is very strong,” with about two job openings for every unemployed worker, Bullard said, and nonfarm payrolls are running at a pace higher than normal. “It just doesn’t seem from the household side like you’d be in imminent stages of households pulling back meaningfully.”
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
June 19
From Bloomberg (here). “The recession risks are going up partly because monetary policy could have pivoted a little bit earlier than it did,” Mester said on CBS’s “Face the Nation” on Sunday. “We do have growth slowing to a little bit below trend growth and that’s OK.”
“We really need to be nimble in this period of uncertainty,” Mester said.
From CNBC (here). Cleveland Federal Reserve Bank President Loretta Mester said it will take two years for inflation to fall to the central bank’s 2% target, adding that it will be “moving down” gradually from the current level. “It isn’t going to be immediate that we see 2% inflation. It will take a couple of years, but it will be moving down,” Mester said in an interview with CBS News on Sunday.
Mester said she was not predicting a recession despite slowing growth. “We do have growth slowing to a little bit below-trend growth and we do have the unemployment rate moving up a little bit. And that is OK, we want to see some slowing in demand to get it in line with supply,” Mester added, referring to forecasts submitted in the past week by participants of the Federal Open Market Committee’s meeting.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
June 21
From Bloomberg (here). The US central bank should raise interest rates as fast as it can without causing undue harm to financial markets or the economy, said Federal Reserve Bank of Richmond President Thomas Barkin. “We are in a situation where inflation is high, it’s broad based, it’s persistent, and rates are still well below normal,” Barkin said Tuesday in a live-streamed event hosted by the National Association for Business Economics. “The spirit is, you want to get back to where you want to go as fast as you can without breaking anything.”
Barkin declined to say whether he would support another 75-basis-point move at the Fed’s meeting in July, though he said he “didn’t have a problem” with the guidance offered by Chair Jerome Powell.
Raphael Bostic – Atlanta Fed President – Neutral
No recent statements.
Mary C. Daly – San Francisco Fed President – Dovish
June 24
From Bloomberg (here). “Seventy-five in July is where I’m starting because I think that right now, that looks like what we’ll need to do,” Federal Reserve Bank of San Francisco President Mary Daly told reporters Friday following a speech in Orange, California. “But I’ll be watching to see any signs that we are less sure about the tightening level that’s already taking place.”
“How much additional tightening will be required depends on a number of factors that fall outside of the Fed’s direct control, including the speed and magnitude of supply chain recovery, the duration of the war in Ukraine, and the willingness of individuals who have left the labor force to reenter,” Daly said.
Charles L. Evans – Chicago Fed President – Dovish
June 22
From Reuters (here). “Seventy-five (basis points) is a very reasonable place to have a discussion,” Evans told reporters after a talk in Cedar Rapids, Iowa, when asked about his outlook for the Fed’s July policy decision. “I think 75 would be in line with continued strong concerns that the inflation data isn’t coming down as quickly as we thought.”
“We’re obviously taking on risk when we want to slow demand, to keep it in line with supply,” Evans said. “To think that we can fine tune something like this with tremendous precision — I mean, we just don’t have that ability.”
“The first thing that we’re looking at is to make sure we take the steam out of the inflation pressures,” he said, adding that there is “tremendous” consensus at the Fed that rates need to be high enough to be modestly restrictive on growth.
Patrick T. Harker – Philadelphia Fed President – Hawkish
June 22
From Reuters (here). “We don’t have to overreact in terms of the fed funds rate,” Harker said during a conference held by the regional Federal Reserve bank. “We need to get above neutral, again I’d like to get above three, but I don’t think you have to accelerate rapidly beyond that at this point until we get a better understanding of what exactly the quantitative tightening is doing.”
Neel Kashkari – Minneapolis – Dovish
No recent statements.