They’ll do what it takes
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Bullard, George, Barkin, Daly, and Kashkari.
Keep in mind
This week we have heard from five participants.
All participants continued to sound hawkish and determined to deliver. As Barkin said “we’re committed to returning inflation to our 2% target and we’ll do what it takes to get there”.
Also, most participants (including Daly) pushed back against the idea of cutting rates in early 2023 not only because of the level of inflation but also because “the worst thing you can have as a business or a consumer is to have rates go rapidly up and then come down. It just causes a lot of caution and uncertainty” (Daly).
Given the above, it is hard to see an imminent pivot, not even in case of a soft August (core) CPI reading.
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 18
From Reuters (here). “I don’t really see why you want to drag out interest rate increases into next year,” Bullard told the Wall Street Journal, saying he would like to get the Fed’s benchmark overnight interest rate to a target range of 3.75% to 4.00% by the end of this year.
Esther L. George – Kansas City Fed President – Hawkish
August 18
From Reuters (here). “To know where that stopping point is … we are going to have to be completely convinced that (inflation) number is coming down,” George said.
George did not state a preference for whether the Fed should approve a third straight 75 basis point rate increase when policymakers meet next month, or a smaller half point increase – the two core options under consideration. But she made clear that the drop in inflation registered in July, while good news, was not evidence the underlying problem was fixed. Much of the decline was related to energy costs, she noted, while prices for a broad set of other services and goods continued to increase.
From Bloomberg (here). “I think the case for continuing to raise rates remains strong. The question of how fast that has to happen is something my colleagues and I will continue to debate, but I think the direction is pretty clear,” she said in Independence, Missouri.
“We have done a lot, and I think we have to be very mindful that our policy decisions often operate on a lag. We have to watch carefully how that’s coming through.”
George pushed back against the easing of financial conditions that has come in the wake of the July CPI report as stocks have rallied.
“Maybe that caused people to think, well, maybe the Fed will slow down, maybe that’s the beginning of inflation coming down. That is not my sense right now,” she said. “So, today, I think those easing of financial conditions are not reflecting, really, how the Federal Reserve is thinking about its policy.”
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
August 19
From Bloomberg (here).“We’re committed to returning inflation to our 2% target and we’ll do what it takes to get there,” Barkin said Friday during an event in Ocean City, Maryland. He said that this could be achieved without a “tremendous decline in activity” but acknowledged that there were risks. “There’s a path to getting inflation under control but a recession could happen in the process,” he said.
From Reuters (here). “The underlying activity metrics look stronger than three weeks ago,” Barkin said. “It’s all a balance between how much underlying strength is there still in the economy, and therefore pressure on prices, and how much of that pressure on prices is easing” because of other changes in supply or commodity markets, Barkin said.
“On the margin I tilt toward ‘get there faster,'” in moving rates to the restrictive level that will be needed to cool demand and control prices, Barkin said. But “there’s still some question in my mind about how you balance that urge with the uncertainty about the underlying health of the economy in a world where our moves operate with a lag.“
Raphael Bostic – Atlanta Fed President – Neutral
No recent statements.
Mary C. Daly – San Francisco Fed President – Dovish
August 18
From Bloomberg (here). “We need to get the rate up, up to neutral at least, which is around 3%, but likely to restrictive territory — a little bit above 3% this year and a little bit more above 3% next year,” she told CNN International in an interview on Thursday. “I really think of the raise-and-hold strategy as one that has historically paid off for us.”
“We have a lot of work to do at the Fed to bring us back to price stability,” she said Thursday. “We want to not to have this idea that we will have this large, hump-shaped rate path where we will ratchet up really rapidly this year and then cut aggressively next year.”
From CNN (here). “There’s some relief [in the latest CPI report], and I was really pleased to see that, but I don’t count on it,” Daly told CNN’s Julia Chatterley. “We have a lot of work to do at the Fed to bring us back to price stability.”
Daly doesn’t see the Fed easing interest rate hikes anytime soon. She predicts they’ll continue into at least 2023, but says that’s ultimately a good thing — even if Wall Street investors don’t agree. “There is a lack of understanding in the markets, but consumers seem to understand,” she said. “They depend on the Fed to not introduce unnecessary volatility. The worst thing you can have as a business or a consumer is to have rates go rapidly up and then come down. … It just causes a lot of caution and uncertainty.“
A raise and hold strategy has historically paid off for the Fed, she said. The central bank is actively trying to warn against the idea of a “large hump shaped rate path, where we’ll ratchet up really rapidly this year and then cut aggressively next 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
August 18
From Reuters (here). “We need to get inflation down urgently,” Kashkari said at an event at the YPO Gold Twin Cities. “We need to get demand down” by raising interest rates. Economic fundamentals are strong, he said, but whether the Fed can lower inflation without sending the economy into a recession, he said, “I don’t know.”