The June SEP dots plot (or higher) is still the baseline
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Bullard, Mester, Barkin, Bostic, Daly, Evans, and Kashkari.
Keep in mind
FOMC participants are finally recognizing that inflation is more persistent than anticipated. Consequently, most participants have reiterated that rates need to increase and remain elevated until there will be enough evidence inflation is returning toward target.
We are still two CPI reports (and one labor market report) away from the September FOMC. Nevertheless, based on the incoming data, the models evidence, and recent communication we now expect the September SEP to show a higher inflation path in 2022-2024 compared to the June SEP and possibly an upper revision to the neutral rate (see Daly’s words below).
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
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
No recent statements.
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
August 2
From CNBC (here). “I think that inflation has come in hotter than what I would have expected during the second quarter,” the central bank official said during a speech in New York. “Now that that has happened, I think we’re going to have to go a little bit higher than what I said before.”
The fed funds rate, which is the central bank’s benchmark, likely will have to go to 3.75%-4% by the end of 2022, Bullard estimated.
Video interview here.
August 3
From Bloomberg (here). “Since modern central banks have more credibility than their counterparts in the 1970s, it appears that both the Fed and the ECB may be able to disinflate in an orderly manner and achieve a relatively soft landing,” Bullard said in remarks prepared for delivery at an event organized by the Money Marketeers of New York University.
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
August 4
From Bloomberg (here). “We’re committed to getting inflation down” to the 2% target, which will require more rate increases, Mester said. “We raise interest rates, and then when we get up to a sufficiently high level where we’ve seen that compelling evidence, then we hold them there for a while, and then we can bring them back down, right as we get inflation closer to goal,” Mester told reporters.
From Reuters (here). “I would pencil in going a bit above four as appropriate,” Mester told reporters following an event held at the Economic Club of Pittsburgh, in reference to the central bank’s policy rate, making her one of the most hawkish members of the rate-setting committee. “It’s not unreasonable I think to maintain that as where we’re getting to and then we’ll see.”
“Interest rates continue to rise this year and into next year through the first half and maybe by then we can pause and we can start bringing them back down,” Mester said.
“It’s not unreasonable to think we might have to do a 75 [basis point move at the September meeting] but I can imagine it could be a 50. We’ll just have to look at the data as it comes in,” Mester said.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
August 3
From Reuters (here). “We are committed to returning inflation to our 2% target and have made clear we will do what it takes,” Barkin said in prepared remarks for an event in Virginia.
Barkin said he sees inflation receding, but “not immediately, not suddenly and not predictably.”
Three drivers should help lower it, he said: flattening demand, in part from the Fed’s rate hikes, improvement in global supply chains and easing of commodity price pressures. But even if the Fed does not get help from global events and supply chains, “we have the tools, and we have the credibility with households, businesses and markets required to deliver that outcome over time, and we will,” Barkin said.
Raphael Bostic – Atlanta Fed President – Neutral
July 29
From Bloomberg (here). “I don’t think the country is in a recession,” he said [last] Friday in an interview on National Public Radio, though he said it was clear that a lot of people were hurting in the current conditions.
“I’m convinced we are going to have to do more in terms of interest-rate moves. But exactly how much and in what trajectory will depend on how the economy evolves over the next several weeks and months,” said Bostic, who does not vote on policy this year. “We are going to get a lot of data in the next two months before our next meeting and that will give us a good indication of what the right course of action is likely to be.”
“One of the things I have been encouraged by is how strong the job growth has been, which suggests to me there’s a lot of momentum in the economy,” Bostic said. Of a recession, “my team and I are not seeing that in the field right now.”
Mary C. Daly – San Francisco Fed President – Dovish
August 2
From CNBC (here). Daly cautioned that no one should take those big moves as an indication that the Fed is winding down its rate hikes.
“Nowhere near almost done,” she said in assessing the progress. “We have made a good start and I feel really pleased with where we’ve gotten to at this point.”
Futures pricing indicates the markets see the Fed raising rates by 0.5 percentage point in September and another half percentage point through the end of the year, taking the funds rate to a range of 3.25%-3.5%, according to CME Group data. That scenario holds that the economy would slow due to the policy tightening, and the Fed would start cutting rates by next summer.
But Daly pushed back on that notion.
“That’s a puzzle to me,” she said. “I don’t know where they find that in the data. To me, that would not be my modal outlook.
From Reuters (here). “if we just see inflation roaring ahead undauntedly, the labor market showing no signs of slowing, then we’ll be in a different position where a 75-basis-point increase might be more appropriate. But I go in with the 50 in mind as I look at the data coming in,” Daly added.
Daly also said raising the Fed’s policy rate to 3.4% by the end of this year “is a reasonable place to think about us getting to,” adding that she does not believe the central bank has yet reached the threshold for that rate to be considered restrictive. Daly said she sees it being restrictive at around the 3% level.
Charles L. Evans – Chicago Fed President – Dovish
August 2
From Reuters (here). “If you really thought things weren’t improving … 50 (basis points) is a reasonable assessment but 75 could also be okay. I doubt that more would be called for,” Evans said during a question-and-answer session at the regional bank’s headquarters in Chicago, effectively dismissing the prospect of raising rates by a full percentage point next month.
Evans too noted that he thinks the Fed’s policy rate will have to rise to between 3.75% and 4.00% by the end of next year, but cautioned against too quick a path to get there should it have to retrench unexpectedly on the back of a changing landscape.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
July 31
From Bloomberg (here). “We are committed to bringing inflation down and we’re going to do what we need to do,” he told CBS’s “Face the Nation” in an interview on Sunday. “We are a long way away from achieving an economy that is back at 2% inflation, and that’s where we need to get to.”
“Whether we are technically in a recession or not doesn’t change my analysis,” Kashkari said. “I’m focused on the inflation data. I’m focused on wage data. And so far, inflation continues to surprise us to the upside. Wages continue to grow. So far, the labor market is very, very strong.”
August 3
From Reuters (here). “Some financial markets are indicating they expect us to cut interest rates next year,” Kashkari said at an event held as part of a financial regulation conference in New York.
“I don’t want to say it’s impossible, but it seems like that’s a very unlikely scenario right now given what I know about the underlying inflation dynamics. The more likely scenario is we would continue raising (interest rates) and then we would sit there until we have a lot of confidence that inflation is well on its way back down to 2%.”