“Play it again”, but this is the limit for now
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from: Waller, Cook, Jefferson, Williams, Mester, Barkin, Bostic, Daly, Evans, and Kashkari.
Keep in mind
This week 10 participants reiterated the path of the FF rate shown in the September dots plot: reach 4.5%-ish this year and keep it elevated in 2023, even in case of a significant slowdown.
As discussed last week, we are probably in a “local maximum of hawkishness” because the models suggest that raising the FF rate to 4.5%-ish *might* be enough to disinflate (note: “might” means that in the models inflation remains a bit above target in 2025 conditional on the announced path of the FF rate).
In summary: the most likely scenario continues to be the September SEP, which is already largely priced in at this point. The Fed can signal a higher path of the FF rate but in order to happen, at this point we need additional upward surprises.
Jerome H. Powell – Chair – Neutral
No recent statements.
Lael Brainard – Governor – Dovish
No recent statements.
Michael S. Barr – Governor – Neutral
No recent statements.
Christopher J. Waller – Governor – Hawkish
October 6
From Fed Board (here). “though there are additional data to come, in my view, we haven’t yet made meaningful progress on inflation and until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed’s balance sheet, to help restrain aggregate demand. As far as achieving our dual mandate, this is a one-sided battle. We currently do not face a tradeoff between our employment objective and our inflation objective, so monetary policy can and must be used aggressively to bring down inflation.“
“Let me turn to the troubling persistence of inflation. […] Unfortunately, the message is that shelter inflation will likely remain high for several months, meaning overall core PCE inflation will continue to be persistently high.”
“Before the next meeting on November 1–2, there is not going to be a lot of new data to cause a big adjustment to how I see inflation, employment, and the rest of the economy holding up. […] I expect most policymakers will feel the same way.”
“In considering what might happen to alter my expectations about the path of policy, I’ve read some speculation recently that financial stability concerns could possibly lead the FOMC to slow rate increases or halt them earlier than expected. Let me be clear that this is not something I’m considering or believe to be a very likely development.“
Michelle W. Bowman – Governor – Neutral
No recent statements.
Lisa D. Cook – Governor – Neutral
October 6
From Fed Board (here). “Reports over the past few months have shown high inflation to be stubbornly persistent, while the labor market has remained strong. Being data dependent, I have revised up my assessment of the persistence of high inflation. And given my risk-management approach, with upside risks to inflation being the most salient, I fully supported the step-up in the front-loading of policy over the past three FOMC meetings.”
“With inflation running well above our 2 percent longer-run goal, restoring price stability likely will require ongoing rate hikes and then keeping policy restrictive for some time until we are confident that inflation is firmly on the path toward our 2 percent goal. At some point, as we continue to tighten monetary policy, it will become appropriate to slow the pace of increases while we assess the effects of our cumulative tightening on the economy and inflation. In any case, the path of policy should depend on how quickly we make progress toward our inflation goal. In sum, inflation is too high, it must come down, and we will keep at it until the job is done.”
Philip N. Jefferson – Governor – Neutral
October 4
From Reuters (here). “Restoring price stability may take some time and will likely entail a period of below-trend growth,” Jefferson told a conference in Atlanta.
Monetary policy that stabilizes inflation “can engender long-term, noninflationary economic expansions … that economic history suggests is an ideal framework or environment for inclusive growth,” Jefferson said. “So, it is important, therefore, that we get back to that kind of economy. And that is what I think the intent of the Fed is.”
John C. Williams – New York Fed President – Dovish
October 7
From Bloomberg (here). Williams said rates are still low by historical standards and that the central bank needs to get its benchmark rate to “somewhere around 4.5% over time” so that it is no longer boosting spending but restraining it.
“The timing of that and how high do we have to raise interest rates is going to depend on the data,” Williams said Friday during a moderated discussion organized by SUNY Buffalo in western New York. “Right now the focus is getting inflation back down to 2% and doing that in a way that keeps the economy growing.”
The New York Fed chief said he sees US economic growth slowing but expects it to remain positive next year. He expects the labor market to weaken and the unemployment rate to rise in response to higher rates.
“But most importantly, I see inflation coming down significantly next year,” he said. “I do see us on the right trajectory of the economy slowing somewhat, and at the same time bringing inflation down over the next couple of years.”
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
No recent statements.
Susan M. Collins – Boston Fed President – Neutral
No recent statements.
Esther L. George – Kansas City Fed President – Hawkish
No recent statements.
Loretta J. Mester – Cleveland Fed President – Neutral
October 6
From Reuters (here). “We have to be singularly focused on inflation,” Mester said at a virtual event held by the Council for Economic Education. “If we want to get back to healthy conditions, this is something we have to do”.
From Bloomberg (here). “We have to bring interest rates up to a level that will get inflation on that 2% path, and I have not seen the compelling evidence that I need to see that would suggest that we could start reducing the pace at which we’re going,” Mester said Thursday during a virtual event organized by the Council for Economic Education.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
October 3
From Bloomberg (here). “The thing you worry about is what collateral damage could there be to international economies and in particular their financial systems,” he told an audience Monday at a conference on technology-enabled disruption at the Atlanta Fed. “There are a lot of countries in the world that have chosen to borrow in dollars and so these get more expensive.”
“You could worry about the risk of financial contagion as the dollar — I mean there’s a whole bunch of stuff to worry about it. It should be keeping me up at night,” Barkin said. “But in the end, our mandate is to help operate the US economy. So you worry about it most in terms of does it affect the US economy.”
Raphael Bostic – Atlanta Fed President – Neutral
October 5
From Reuters (here). The U.S. Federal Reserve’s fight against inflation is likely “still in early days,” Atlanta Fed president Raphael Bostic said Wednesday.
Despite “glimmers of hope” in recent data, Bostic said “the overarching message I’m drawing…is that we are still decidedly in the inflationary woods, not out of them,” with the Fed’s target funds rate needing to rise to around 4.5% by the end of the year.
There is “considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall,” Bostic said. “I would say: not so fast.”
“We should not let the emergence of (economic) weakness deter our push to lower inflation,” Bostic said. “We must remain vigilant because this inflation battle is likely still in early days.”
Mary C. Daly – San Francisco Fed President – Dovish
October 5
From Reuters (here). “We definitely don’t raise rates until something breaks; we actually are forward-looking,” Daly told Bloomberg TV in an interview, adding that policymakers don’t rely only on models but gather information from business and community leaders to shape their policies. “You are constantly calibrating through this data dependence to risks” of not doing enough to slow the economy, or doing too much.”
The “path has been very clear: we are going to raise the rate until we get into restrictive territory, and then we are going to hold it there” until inflation comes down closer to 2%.
Daly said she does not expect that to occur until 2024. “It really is the idea that you hold for a while so that we can see inflation come back down, and our path hasn’t really changed; we haven’t pivoted on that and we’re resolute at restoring price stability,” she said. “We’re in a vulnerable position when we have high inflation.”
Charles L. Evans – Chicago Fed President – Dovish
October 6
From Bloomberg (here). “We have to look at the momentum in sort of that central component of inflation, and that’s really the part that I believe has most of my colleagues and myself nervous,” Evans said Thursday at a meeting of the Illinois Chamber of Commerce. “We look to me, according to our reports, headed for 4.5% to 4.75% by sometime next year — which, given how fast we’ve been raising interest rates, is likely to be the springtime.”
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
October 6
From Bloomberg (here). “Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause. I think we’re quite a ways away from a pause.”
“We need to keep our eyes open for risks that could be destabilizing for the American economy as a whole. But to me, the bar to actually shifting our stance on policy is very high,” he said. “It should not be up to the Federal Reserve or the American taxpayer to bail people out.”
“Commodity prices move up and down, but underlying inflation — like wages and services — tend to be stickier,” Kashkari said. “We’re not seeing any evidence yet that those things are moving in the right direction.”
Lorie K. Logan – Dallas – Neutral
No recent statements.