Not enough for 100bps hike
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Waller, Bullard, George, Mester, Barkin, Bostic, Daly, and Kashkari.
Keep in mind
This week we got a mix of statements. Some participants (Waller, Mester, Daly, Kashkari) seem open to deliver a 100bps hike at the upcoming meeting, while other participants (Bullard, George, Barkin, Bostic) are less open and prefer a smaller (75bps) hike.
All told, it seems there is not enough consensus to deliver 100bps. In the end, the FOMC will probably hike 75bps and hope it is enough.
Time will tell if hope is a strategy.
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
No recent statements.
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
July 14
From Fed Board (here). “We must be focused on reducing inflation because, despite a lot of talk about recession lately, the evidence from the labor market indicates the economy is on track, while inflation continues to be far too high. It must be our focus because high inflation is the biggest challenge to sustaining our employment goal, and the greatest burden for individuals and families, especially lower- and moderate-income households that dedicate a larger share of their spending to necessities.”
“So let me be clear: I am going to vote to set policy in a manner that will reduce inflation and achieve our price stability goal“.
“But the causes of inflation don’t affect my approach to policy because in writing the FOMC’s mandate, Congress did not say “Your goal is price stability unless inflation is caused by supply shocks, in which case you are off the hook.” We want to reduce excessive inflation, whatever the source, in part because whether it comes from supply or demand, high inflation can push up longer-run inflation expectations and thus affect spending and pricing decisions in the near term. These decisions can then push up prices even more and make inflation harder to get under control.”
“As I have said before, with inflation so high, there is a virtue in front-loading tightening so that policy moves as soon as is practical to a setting that restricts demand. Getting there sooner will bolster the public’s confidence that we can get inflation down and it will preserve options for adjusting the pace of tightening later if needed.
With this view, it should not be surprising that looking toward the FOMC’s next meeting July 26-27, and with the CPI data in hand, I support another 75-basis point increase, bringing the target range for the federal funds rate to 2-1/4 to 2-1/2 percent before August.“
“However, my base case for July depends on incoming data. We have important data releases on retail sales and housing coming in before the July meeting. If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”
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
July 14
From Bloomberg (here). “So far, we’ve framed this mostly as 50 versus 75 at this meeting. I think 75 has a lot of virtue to it” because it brings the benchmark rate to roughly the neutral level as seen by policy makers, Bullard was quoted as saying in a Nikkei interview on Wednesday that was published Thursday. “As of today, I would advocate 75 basis points again at the next meeting.”
Esther L. George – Kansas City Fed President – Hawkish
July 11
From Bloomberg (here). “Moving interest rates too fast raises the prospect of oversteering.” “This is already a historically swift pace of rate increases for households and businesses to adapt to, and more abrupt changes in interest rates could create strains, either in the economy or financial markets,” she said.
“Along these lines, I find it remarkable that just four months after beginning to raise rates, there is growing discussion of recession risk, and some forecasts are predicting interest rate cuts as soon as next year.”
“Such projections suggest to me that a rapid pace of rate increases brings about the risk of tightening policy more quickly than the economy and markets can adjust,” George said.
“Given this range of outcomes, it is unclear just how high rates will need to move in order to bring inflation down,” she said. “These dynamics suggest it will be particularly important to observe how the economy is adapting to changes in monetary policy.”
Loretta J. Mester – Cleveland Fed President – Neutral
July 14
From Bloomberg (here). “Certainty the inflation report suggests that there’s no reason to say that a smaller rate increase than we did last time, right, because nothing moved in that direction,” Mester said Wednesday during an interview on Bloomberg Television with Kathleen Hays.
Asked if she thought a 100 basis-point rate increase should be considered this month, Mester said that decision would be made at the July 26-27 meeting and that officials would have more economic data by then to factor in. ”We’re going to have the meeting and we’re going to talk about what the appropriate path of policy is,” Mester said. “We don’t have to make a decision today.”
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
July 12
From Reuters (here). “I definitely see signs of [growth] softening,” Barkin said, with the evidence “most pronounced in lower income households” and in parts of the economy that saw demand surge during the pandemic.
“I expect inflation to come down but not immediately, not suddenly, and not predictably,” he said. “My expectations are it will be a slower path rather than an immediate path down to 2%.”
Barkin said it was possible the United States could skirt a downturn, but that would hinge on the degree to which controlling inflation required “demand destruction” in the economy, as opposed to improvements in labor supply and global commodity prices that hold down prices without requiring slower growth.
Raphael Bostic – Atlanta Fed President – Neutral
July 15
From Bloomberg (here). “Moving too dramatically will undermine a lot of the other things working well,” he told an event Friday hosted by the Tampa Bay Business Journal in Tampa, Florida. “We want it to be orderly” and for people to have “the right perceptions” about the economy.
Bostic, who does not vote on monetary policy this year, also called the the 75 basis-point increase that the Fed delivered in June a “very big move” compared to past practice and said “if we went” much larger, “people would be concerned.”
Mary C. Daly – San Francisco Fed President – Dovish
July 15
From Financial Post / Reuters (here). “I’m not concerned about overcooking things,” Daly told Newsy’s Morning Rush program, noting that the Fed had been delivering extraordinary accommodation to the pandemic-hit economy and is now reducing that to try to bring down the too-high inflation rate. Doing so will help Americans currently struggling to pay for gas and food, and while the increase in borrowing costs makes it a “little bit painful” now, inflation should be less painful by the end of the year, she said.
Charles L. Evans – Chicago Fed President – Dovish
No recent statements.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
July 14
From StarTribune (here). “I don’t have a lean at this point,” Kashkari said. “I’m open-minded. I was not considering a 1.0 [percentage point increase] a week ago. But the inflation data was concerning enough that it means we have to keep our eyes open and our minds open.”
“I continue looking for some good news to suggest things are moving in the right direction, and so far they are not,” Kashkari said.
He added he was disappointed to see in the most recent inflation report that price increases have not started to moderate.
“It surprised us,” he said. “It was higher than we expected and broader across categories.” “When we see inflation spreading to broader sectors of the economy, that gives us more concern,” he said.