Everything according to the plan
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Powell, Brainard, Waller, Bullard, Collins, George, Mester, Barkin, and Evans.
Keep in mind
9 FOMC speakers this week before the radio silence, everything according to the plan: raise the FF rate to about 4%, do not take signal from any single inflation report, keep the FF rate high as long as necessary to make sure inflation is dominated. In our view, FOMC participants are genuine because the plan is in line with the prediction of the models, as previously communicated. No reason to think they will not deliver, not even in case of a soft CPI report next Tuesday.
Jerome H. Powell – Chair – Neutral
September 8
From Reuters (here). Powell did restate what has now become the Fed’s message of the moment: Policymakers won’t back down on planned rate increases. “We need to act now, forthrightly, strongly as we have been doing, and we need to keep at it until the job is done,” Powell said. “The Fed has and accepts responsibility for price stability.”
“My colleagues and I are strongly committed to this project and we will keep at it until the job is done.” Powell said that because inflation expectations this time remain largely anchored around the central bank’s 2% target, the outcome could be better.
“We think we can avoid the kind of very high social costs that Paul Volcker and the Fed had to bring into play” in the 1980s, Powell said. But he added, as his colleagues have in recent remarks, that even if unemployment starts to rise more than expected, the Fed’s focus will remain on price control. “History cautions against prematurely loosening policy,” he said.
Lael Brainard – Governor – Dovish
September 7
From Fed Board (here). “With a series of inflationary supply shocks, it is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2 percent in the longer run, which would make it much more challenging to bring inflation back down to our target. The Federal Reserve is taking action to keep inflation expectations anchored and bring inflation back to 2 percent over time.”
“While the moderation in monthly inflation is welcome, it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2 percent.”
“At some point in the tightening cycle, the risks will become more two-sided. The rapidity of the tightening cycle and its global nature, as well as the uncertainty around the pace at which the effects of tighter financial conditions are working their way through aggregate demand, create risks associated with overtightening. And if history is any guide, it is important to avoid the risk of pulling back too soon.”
“Following a lengthy sequence of adverse supply shocks to goods, labor, and commodities that, in combination with strong demand, drove inflation to multidecade highs, we must maintain a risk-management posture to defend the inflation expectations anchor. While we have no control over the supply shocks to food, energy, labor, or semiconductors, we have both the capacity and the responsibility to maintain anchored inflation expectations and price stability.”
“We are in this for as long as it takes to get inflation down. [….] Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target.”
Michael S. Barr – Governor – Neutral
No recent statements.
Christopher J. Waller – Governor – Hawkish
September 9
From Fed Board (here). “[…] inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward. The Federal Open Market Committee (FOMC) is committed to undertake actions to bring inflation back down to our 2 percent target. This is a fight we cannot, and will not, walk away from”.
“[…] while I welcome promising news about inflation, I don’t yet see convincing evidence that it is moving meaningfully and persistently down along a trajectory to reach our 2 percent target. “
“Looking ahead to our next meeting, I support another significant increase in the policy rate. But, looking further out, I can’t tell you about the appropriate path of policy. The peak range and how fast we will move there will depend on data we will receive about the economy.”
“Say, for example, that inflation follows the path laid out in the June SEP, which has core PCE inflation falling to 4.3 percent in the fourth quarter of 2022 and then moving toward 2 percent over 2023 and 2024. In that case, I would support our policy rate peaking near 4 percent. But based on the experience of the past year and half, it would be foolish to express great confidence that this plausible path will come to pass. Instead, it is important to consider the range of possibilities and the appropriate policy responses. For example, if inflation does not moderate or rises further this year, then, in my view, the policy rate will probably need to move well above 4 percent. Alternatively, if inflation suddenly decelerates, then, in my view, the policy rate might peak at less than 4 percent.”
“No matter what, I am ready and willing to do what it takes to bring 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
September 9
From Bloomberg (here). ‘’I was leaning toward 75 and the jobs report was reasonably good last Friday,” Bullard said in a Bloomberg News interview late Thursday in St. Louis. While the consumer price index may show progress when it’s reported next week, “I wouldn’t let one data point sort of dictate what we are going to do at this meeting. So I am leaning more strongly toward 75 at this point.”
‘’The general strategy of trying to front-load these rate increases is working well and putting us in a position where we can have a level of the policy rate that is putting downward pressure on inflation very soon,” the St. Louis chief said. “And sooner tends to be better in my mind.” Bullard votes on monetary policy this year.
“I have felt Wall Street is underpricing the idea that inflation may just be relatively high and it may take quite a while to bring back to 2%,” Bullard said. “This would mean interest rates have to be higher for longer. That’s a scenario that is not garnering enough attention in today’s market pricing.”
Susan M. Collins – Boston Fed President – Neutral
September 7
From Reuters (here). Boston Federal Reserve Bank’s new President Susan Collins, in her first media interview since starting the job this summer, said that bringing inflation back down to 2% is the Fed’s “Job One,” and while it has raised rates significantly, “there’s more to do.”
“I will reiterate that we need to do more, we’ve not yet seen significant declines in prices, and that’s what we’re going to be looking for.”
Esther L. George – Kansas City Fed President – Hawkish
September 9
From Bloomberg (here). “The case for continuing to remove policy accommodation remains clear-cut,” George said Friday in remarks prepared for a virtual event organized by the Peterson Institute for International Economics. “The key questions are by how much and how quickly.”
“We will have to determine the course of our policy through observation rather than reference to theoretical models or pre-pandemic trends,” said George, who did not specify in her remarks the size of the rate increase that she would support later this month. “Given the likely lags in the pass-through of tighter monetary policy to real economic conditions, this argues for steadiness and purposefulness over speed.”
Loretta J. Mester – Cleveland Fed President – Neutral
September 7
From Bloomberg (here). “In formulating my monetary policy views, I will be guarding against declaring victory over the inflation beast too soon,” Mester said Wednesday during remarks prepared for an MNI webcast.
“It’s better to focus on what is the path of interest rates,” she said. “We do have to raise rates from where they are now. I think we have to get into positive territory for the real rate and that means we’re going to have to do more work than where we are now to get inflation on a downward path.”
September 9
From WSJ (here). “Right now, I don’t foresee us cutting rates next year, you know. As I said, I think going a little bit above 4% by early next year and then holding it there is what my policy path is, based on the current information I have.“
“I really need to see compelling evidence that inflation’s coming back down. So I don’t expect one report or even if you think of the previous report as being that compelling evidence that would necessarily change my view of policy. But I do think it’s really important to look under the hood of that report and see what’s happening.”
“I think there’s good reason to believe that we may see services inflation stay up persistently. So I’m going to need to see more data to be able to say, “Hey, has inflation peaked?” And then we really want to see it on a downward path that’s sustainable toward 2%.”
“[…] if you’re doing risk management, if you do the risk-management approach, you should be really leaning against the high inflation—one, because high inflation itself is above our goal, way above our goal; and two, the longer it stays above, the more probability and chance there are that expectations are affected and move up, and longer-term expectations move up.”
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
September 7
From FT (here). “You do have to move to a level where inflation expectations come down in order to have enough restriction on the economy to bring inflation down,” Barkin said on Tuesday. “The destination is real rates in positive territory and my intent would be to maintain them there until such time as we really are convinced that we put inflation to bed.”
In terms of how fast the Fed should move to reach such a threshold, he said: “I have a bias in general towards moving more quickly, rather than more slowly, as long as you don’t inadvertently break something along the way.”
“What you do is you raise and you assess, and you raise and you assess,” said Barkin, citing the lessons learned from the 1970s, when the central bank prematurely eased monetary policy before it had fully vanquished inflation. But once rates move past “neutral”, meaning they neither stimulate nor restrain growth, Barkin said it will be “completely appropriate” to consider the risks of over-tightening.
Raphael Bostic – Atlanta Fed President – Neutral
No recent statements.
Mary C. Daly – San Francisco Fed President – Dovish
No recent statements.
Charles L. Evans – Chicago Fed President – Dovish
September 8
From Bloomberg (here). “I think that we’ve got a good plan in place. We could very well do 75 in September,” he said Thursday during remarks at an event hosted by the College of DuPage in Glen Ellyn, Illinois. “My mind is not made up. I do know that we need to be increasing interest rates up to a substantially higher level than where they are now,” said Evans, who does not vote on monetary policy this year.
“I think the precise path is less important than just constantly telling people, we’re on this path, this is what we’re going to do, inflation is job one, we’re going to handle this,” Evans said.
“Unemployment is 3.7% right now. I’m optimistic that we’re going to be able to navigate this and keep unemployment to about 4.5% by the time we’re done,” he said. “That would still be a pretty good outcome, although it will be costly for some.”
Speaking later with reporters, Evans said the danger of over-tightening policy would grow once rates reached 3.5%.
“I would prefer to find an appropriate spot to pause and monitor how things are going, rather than go much higher — potentially overshoot,” he said. “I wouldn’t say that I’m advocating sort of pausing at 3.5%, because I think 4 is more likely.”
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
No recent statements.
Lorie K. Logan – Dallas – Neutral
No recent statements.