Hawkish as usual
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
This week we have heard from: Brainard, Bowman, Bullard, Mester, Daly, Evans, and Kashkari.
Keep in mind
Another week, another set of hawkish statements from 7 participants. Once again, the statements appear in line with previous communication (and with the September dots plot), including those released after the September CPI report.
In theory, the Fed can be even more aggressive if the data will not cooperate in the next 4-6 months. But for the time being, the baseline remains the same: bring the FF rate to 4.5%-5%-ish and keep it there (which, for the record, is roughly in line with the models). Because it takes at least 3 quarters for monetary policy to have effects on the economy, most of them are still in the pipelines. Therefore, we continue to think the Fed has reached a “local maximum of hawkishness”, which should continue for at least another 2-3 months.
Jerome H. Powell – Chair – Neutral
No recent statements.
Lael Brainard – Governor – Dovish
October 6
From Fed Board (here). “The Federal Reserve has tightened policy strongly to bring inflation down, and U.S. tightening is being amplified by concurrent foreign tightening. We are starting to see the effects in some areas, but it will take some time for the cumulative tightening to transmit throughout the economy and to bring inflation down.”
“Strong wage growth along with high rental and housing costs mean that inflation from core services is expected to ease only slowly from currently elevated levels. In contrast, core goods have been expected to return to something closer to the pre-pandemic trend of modest disinflation as a result of demand rotation away from goods to services, coupled with the healing of supply chains and declining core import prices.”
“Monetary policy will be restrictive for some time to ensure that inflation moves back to target over time. It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down. In light of elevated global economic and financial uncertainty, moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting to cumulative tightening in order to inform our assessments of the path of the policy rate.”
Michael S. Barr – Governor – Neutral
No recent statements.
Christopher J. Waller – Governor – Hawkish
No recent statements.
Michelle W. Bowman – Governor – Neutral
October 12
From Fed Board (here). “Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis”
“If we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table. However, if inflation starts to decline, I believe a slower pace of rate increases would be appropriate. To bring inflation down in a consistent and lasting way, the federal funds rate will need to move up to a restrictive level and remain there for some time. However, it is not yet clear how high we will need to raise the federal funds rate and how much time will pass before we begin to see inflation moving back down in a consistent and lasting way.”
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
October 15
From Bloomberg (here). “Whether the committee would want to pull some proposed or thought-of policy-rate increases from 2023 into the December meeting, I think that’s a judgment that is premature to make,” he said Saturday in Washington during an event on the sidelines of the annual meeting of the International Monetary Fund and World Bank.
“You want to get where you need to be and then after you can react to data,” he said, adding that there was a “bullish case” for next year if declines in inflation forecast by both the central bank and private sector economists are proved correct.
“If that dynamic comes in it’s going to look very good, and we’ll be able to basically stay where we are and watch the inflation come down,” he said. “But there is a lot of risk also that inflation goes still higher and then we have to react to that.”
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 14
From Bloomberg (here). Kansas City Fed President Esther George said Friday that officials should raise rates to a restrictive level while avoiding too much haste, which could “disrupt financial markets and the economy in a way that ultimately could be self-defeating.”
“You may see the terminal fed funds rate higher and have to stay there longer,” she said. “But I’m more cautious maybe than most about how quickly we do that.”
From Reuters (here). “I have been in the camp of steadier and slower to begin to see how those effects from the lag will unfold,” George said during an event organized by S&P Global Ratings. “The full effect on the real economy is likely still playing out.”
“These large moves in the policy rate are likely to increase uncertainty around future policy actions…to the extent we can minimize this policy uncertainty during a time of heightened market volatility I think is particularly important,” George added.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
No recent statements.
Raphael Bostic – Atlanta Fed President – Neutral
No recent statements.
Mary C. Daly – San Francisco Fed President – Dovish
October 14
From Bloomberg (here). Daly, speaking Friday in a video interview with Yahoo! Finance, said she’s “very supportive” of continuing to increase rates to restrictive levels.
“We are not on some sort of course that can’t correct if the economy needs more bridling or needs less bridling,” Daly said. But increasing rates to between 4.5% and 5% “is the most likely outcome,” with the Fed then planning to “hold at that point for some period of time,” she said.
Charles L. Evans – Chicago Fed President – Dovish
October 10
From CNBC (here). “Ultimately, inflation is the most important thing to get under control. That’s job-one,” Evans said during a live “Squawk on the Street” interview. “Price stability sets the stage for stronger growth in the future.”
“If unemployment goes up, that’s unfortunate. If it goes up a lot, that’s really very difficult,” Evans said. “But price stability makes the future better.”
From Reuters (here). “There’s not really a lot of difference” at this point among Fed officials’ views about appropriate policy, Evans said. “We’re headed for this four and a half percent-ish federal funds rate by March…We are going to put a lot of restrictiveness in place no matter what the data comes in at, unless there was really a lot in the next two months. There’s not enough time for that.”
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Dovish
October 12
From Bloomberg (here). The bar for a Federal Reserve pivot away from monetary policy tightening is “very high” amid ongoing strength in underlying inflation, Minneapolis Fed President Neel Kashkari said.
“If the economy entered a steep downturn, we could always stop what we’re doing. We could always — if we needed to — reverse what we’re doing, if we thought that inflation was headed back down very, very quickly,” Kashkari said.
“For me, the bar for such a change is very high because we have not yet seen much evidence that the underlying inflation — the services inflation, the wage inflation, the labor market — that that is yet softening,” he said.
“I think we’re quite a ways away from anything like that,” Kashkari said, referring to the idea of a policy pivot. “I think a much more likely scenario is we will raise to some level north of 4% — maybe 4.5 — and then pause and sit there for an extended period of time while the tightening we’ve already done works its way through the economy.”
Lorie K. Logan – Dallas – Neutral
No recent statements.