The doves are alive
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
This week we have heard from: Cook, Bullard, Bostic, Daly, Evans, Harker, and Kashkari.
Keep in mind
The big news of the week is that the doves are back and some hawks sounded slightly less hawkish. On the one hand, Daly and Evans talked about the risks of over tightening. On the other hand, Harker stressed that it takes time to disinflate the US economy.
In the end, the impression is that the FOMC participants will discuss the idea of pausing after getting to 4.5%-5%. The doves are certainly supportive of this idea, and some hawks might agree as well. Indeed, we know that monetary policy operates with substantial lags (3 quarters). Therefore, the most likely scenario at the moment is the one in which the Fed “gives inflation a chance”.
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
No recent statements.
Michelle W. Bowman – Governor – Neutral
No recent statements.
Lisa D. Cook – Governor – Neutral
October 20
From Bloomberg (here). “Inflation is too high, it must come down and we will keep at it until the job is done,” she said Thursday during opening remarks at a panel discussion with business and community leaders in Spartanburg, South Carolina. “This likely will require ongoing rate hikes and then keeping policy restrictive for some time.”
“Policy must be based on whether we see inflation actually falling in the data, rather than just in forecasts. Policy should remain focused on restoring price stability, which will also set the foundation for a sustainably strong labor market,” she said.
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 21
From Bloomberg (here). “The job market is extremely strong,” Bullard said Friday in a Wharton Business interview on SiriusXM radio. “That gives the Fed some leeway to fight the inflation problem now while we can” and get inflation back to the 2% target “relatively quickly.”
October 19
From Bloomberg (here). “You do have to think about what the reasonable level is,” Bullard said Wednesday in a Bloomberg TV interview with Kathleen Hays in St. Louis, suggesting that he doesn’t currently see the need to push rates higher than officials have already projected. The goal is to move to “some meaningfully restrictive level” that will push inflation down. “But it doesn’t mean that you go up forever,” he said.
“In 2023 I think we’ll be closer to the point where we can run what I would call ordinary monetary policy,” he said. “Now you’re at the right level of the policy rate, you’re putting downward pressure on inflation, but you can adjust as the data come in in 2023.”
“Not that there wouldn’t be further adjustments, but they would be more based on the data coming in as opposed to us trying to get off zero and up to some level that’s reasonable,” he said.
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
No recent statements.
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
No recent statements.
Raphael Bostic – Atlanta Fed President – Neutral
October 18
From Bloomberg (here). “The top line message that is front forward for me is that inflation is high, and in fact, it’s too high,” he said. “And we need to get that under control.”
“Without stable prices, it is hard to imagine we are going to get the economy into a long-run growth trajectory,” Bostic said.
Mary C. Daly – San Francisco Fed President – Dovish
October 21
From Bloomberg (here). Federal Reserve Bank of San Francisco President Mary Daly said that policymakers should start planning for a reduction in the size of interest-rate increases, though it’s not yet time to “step down” from large hikes. “It should at least be something we’re considering at this point, but the data haven’t been cooperating,” Daly said Friday.
At the November meeting, “we might find ourselves, and the markets have certainly priced this in, with another 75 basis-point increase, but I would really recommend people don’t take that away as, it’s 75 forever.”
She reiterated that recent central bank forecasts showing rates rising next year to as high as 5% and then pausing were still “a fairly good indication of where things are looking.”
“We need to be thoughtful in how restrictive we need to be and that means we need to be data dependent,” Daly said.
From Reuters (here). “I hear a lot of concern right now that we are just going to go for broke. But that’s actually not how we, I think about policy at all,” Daly said. “We have to make sure we are doing everything in our power not to overtighten, and we can’t pull up too fast, and say we are done,” Daly said.
With inflation by the Fed’s preferred measure running at more than three times the 2% goal and the labor market still strong, Daly said “it’s really challenging to step down right now … We are not there yet.” But, she added, “the time is now to start talking about stepping down. The time is now to start planning for stepping down.”
Charles L. Evans – Chicago Fed President – Dovish
October 20
From Bloomberg (here). “Unfortunately, at the moment, inflation is just much too high, and so we need to continue on the path that we’ve been indicating — at least that. And I’m hopeful that that will be enough,” Evans told reporters Wednesday after speaking at an event in Charlottesville, Virginia.
“Continued increases in the funds rate along the lines of our September SEP could lead to a economic outlook where we’re going to see below-trend growth — we’ll be challenged in that regard — we’ll see the unemployment rate go up, but I think that it won’t take off,” Evans said.
“I think if we have to increase the path of the funds rate much more, though, it really does begin to weigh on the economy. I worry that it’s sort of a nonlinear kind of event.”
October 21
From Reuters (here). “Front-loading was a good thing, given how far below neutral rates were” as recently as March, when they were near zero, Evans told the regional Fed bank’s Community Bankers Symposium earlier Friday. “But overshooting is costly, too, and there is great uncertainty about how restrictive policy must actually become, so this is going to put a premium on the strategy of getting to a place and a level where policy can plan to rest and evaluate data and developments.”
Patrick T. Harker – Philadelphia Fed President – Hawkish
October 20
From Bloomberg (here). “We are going to keep raising rates for a while,” Harker said Thursday in remarks prepared for an event with the Greater Vineland Chamber of Commerce in Vineland, New Jersey. “Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year,” before pausing hikes sometime next year, he said.
Harker, who doesn’t vote on monetary-policy decisions this year, said the Fed will base its decisions on economic data and remain “flexible on policy,” tightening more next year if needed.
“If we have to, we can tighten further, based on the data,” Harker said. “But we should let the system work itself out. And we also need to recognize that this will take time: Inflation is known to shoot up like a rocket and then come down like a feather.”
“What we really need to see is a sustained decline in a number of inflation indicators before we let up on tightening monetary policy,” he said.
Neel Kashkari – Minneapolis – Hawkish
October 18
From Reuters (here). “I’ve said publicly that I could easily see us getting into the mid-4%s early next year,” Kashkari said at a panel at the Women Corporate Directors, Minnesota Chapter, in Minneapolis.
“But if we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping at 4.5%, or 4.75% or something like that. We need to see actual progress in core inflation and services inflation and we are not seeing it yet.”
“That number that I offered is predicated on a flattening out of that underlying inflation,” Kashkari said. “If that doesn’t happen, then I don’t see how we can stop.”
October 19
From Bloomberg (here).“My best guess right now is yes, do I think inflation is going to level out over the next few months, the services, the core inflation, and then that would position us some time next year to potentially pause,” Kashkari said Wednesday during a virtual event organized by the Travelers Institute.
Lorie K. Logan – Dallas – Neutral
No recent statements.