Unconditional means unconditional
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Powell, Williams, Mester, and Daly.
Keep in mind
The FOMC participants who spoke last week reiterated that the Fed commitment to reducing inflation is “unconditional”. Most participants are onboard (or directly forecasting) a significant deceleration of real output growth, although none is expecting a recession. Consequently (via Okun’s law), most participants expect the unemployment rate to rise in the upcoming months/years. The informal consensus seems to be that a rise of the unemployment rate to 4%-ish would be tolerated and considered a soft-landing. In other words, “unconditional” means unconditional: first, bring inflation down; then, re-assess.
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 29
From Reuters (here). The Federal Reserve will not let the economy slip into a “higher inflation regime” even if it means raising interest rates to levels that put growth at risk, Fed Chair Jerome Powell said on Wednesday in remarks emphasizing the U.S. central bank’s do-whatever-it-takes approach to tempering future price hikes.
“The clock is kind of running on how long will you remain in a low-inflation regime … The risk is that because of the multiplicity of shocks you start to transition into a higher inflation regime, and our job is to literally prevent that from happening and we will prevent that from happening,” Powell said at a European Central Bank conference.
While “there is a risk” the Fed slows the economy more than needed to bring inflation back to the central bank’s 2% target, Powell said, “I would not agree that is the bigger risk. The bigger mistake would be to fail to restore price stability.”
Powell said the U.S. economy remains “in pretty strong shape,” and, he feels, will be able to cope with tighter credit conditions while avoiding recession or even a significant rise in the unemployment rate.
But the path to that so-called “soft landing” is becoming “significantly more challenging” the longer that high inflation lasts, Powell said, and policymakers are particularly attuned to the risk that public expectations about the future behavior of wages and prices may eventually accelerate as well.
From Bloomberg (here). “Since the pandemic, we’ve been living in a world where the economy has been driven by very different forces,” Federal Reserve Chair Jerome Powell said on a panel moderated by Bloomberg Television’s Francine Lacqua.
“What we don’t know is whether we’ll be going back to something that looks more like or a little bit like what we had before — we suspect it’ll be kind of a blend.” Powell said. “We’re learning to deal with it.”
“We’ve lived in that world where inflation was not a problem,” Powell said. “I think we understand better how little we understand about inflation.”
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
No recent statements.
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
June 28
From Bloomberg (here). Williams closely echoed the Fed chair, telling CNBC in an interview earlier Tuesday that “in terms of our next meeting, I think 50 to 75 is clearly going to be the debate.”
The policy maker said he supports raising the Fed’s benchmark interest rate to a range of 3% to 3.5% by later this year, and that the path for 2023 will depend on the data — though current bets in financial markets for rates to be around 3.5% to 4% next year are “a perfectly reasonable projection right now.”
“I am expecting growth to slow this year, quite a bit, relative to what we had last year, and actually to slow to probably 1% to 1.5% GDP growth,” he said, indicating that he has one of the lower forecasts among the Fed’s 18 policy makers, based on the 1%-2% range of their quarterly growth estimates updated earlier this month.
“But that is not a recession. It’s a slowdown we need to see in the economy to reduce the inflationary pressures that we have and bring inflation down.”
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
No recent statements.
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
June 29
CNBC interview (here). Mester — a voting member of the Federal Open Market Committee — said July’s meeting will likely involve a debate among FOMC policymakers over whether to opt for 50 basis points or 75 basis points.
“If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see in order to think that we can go back to a 50 increase,” she told CNBC’s Annette Weisbach.
“I think getting interest rates up to that 3-3.5%, it’s really important that we do that, and do it expeditiously and do it consistently as we go forward, so it’s after that point where I think there is more uncertainty about how far we’ll need to go in order to rein in inflation,” Mester said.
“At the Fed, we’re on a path now to bring our interest rates up to a more normal level and then probably a little bit higher into restrictive territory, so that we can get those inflation rates down so that we can sustain a good economy going forward,” she said.
“Job one for us now is to get inflation rates under control, and I think right now that’s coloring how consumers are feeling about the economy and where it’s going.”
Mester acknowledged there is a risk of recession as the Fed embarks on its tightening policy. However, her baseline forecast is for growth to be slower this year, below “trend growth,” which she puts at 2%, as the Fed tries to moderate demand and bring it closer to constrained supply.
“I expect to see unemployment rates rise over the next two years to a little above 4% or 4.25%, and again that’s still very good labor market conditions,” she said.
“So we’re in this transition right now, and I think that’s going to be a painful one in some respects and it’s going to be a bumpy ride in some respects, but it’s very necessary that we do it to get those inflation numbers down.”
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
No recent statements.
Raphael Bostic – Atlanta Fed President – Neutral
No recent statements.
Mary C. Daly – San Francisco Fed President – Dovish
June 28
From Bloomberg (here). “I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,” Daly told an online event hosted by LinkedIn. “I wouldn’t be surprised, and it’s actually in my forecast, that growth will slip below 2%, but it won’t actually pivot down into negative territory for a long period of time.”
From ForexLive (here). “My own views on policy… are that we need to get to something like the neutral rate of interest by the end of the year, which in my judgment would be to around the 3.1% range of a nominal Fed funds rate.”
“And so what would unwind the need to do that? Well, if there were some extraordinary unexpected developments in the economy that pull inflation down rapidly, or supply chain would repair or some another global shock that we had to deal with, but none of those things are happening”
“I would say 75 [basis points] in July, and then you figure out what else needs to be done so that we can get to 3.1% by the end of the year.
Charles L. Evans – Chicago Fed President – Dovish
No recent statements.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
No recent statements.