Hold your fire
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
In the last 2 weeks we have heard from: Brainard, Barr, Waller, Cook, Williams, Bullard, Collins, George, Mester, Bostic, Daly, Harker, and Kashkari.
Keep in mind
A consensus has emerged in the last few weeks around two main points: (i) the latest CPI report was welcome but it will take much more for the FOMC to pivot, and (ii) participants are determined to continue hiking into early 2023 (although the terminal rate remains uncertain) given the strength of the economy.
Recent communication is in line with the messages that, in our view, are coming from the Fed staff (models): there are visible signs that the situation is improving but it is too early to conclude that inflation is returning towards target. In our view, the Fed staff will deliver the above message to the FOMC at the upcoming December round.
For this reason, we expect FOMC participants to continue pushing back against markets in the near-term. The data might prove “soft” going forward but it will take time for the Fed staff and the FOMC to pivot; the first real opportunity seems to be the March 2023 FOMC (but more likely the June 2023 FOMC).
For the time being: hold your fire.
Jerome H. Powell – Chair – Neutral
No recent statements.
Lael Brainard – Governor – Dovish
November 14
From Reuters (here). “I think it will probably be appropriate soon to move to a slower pace of increases, but I think what’s really important to emphasize is… we have additional work to do,” Brainard said.
“It’s really going to be an exercise on watching the data carefully and trying to assess how much restraint there is and how much additional restraint is going to be necessary, and sustained for how long, and those are the kinds of judgments that lie ahead for us,” she said.
“It makes sense to move to a more deliberate and a more data dependent pace as we continue to make sure that there’s restraint that will bring inflation down over time,” she said.
Data released last week showing a slowdown in overall inflation and particularly in goods prices was “reassuring,” Brainard said, and so far many economic indicators have showed continued strength despite the Fed’s aggressive rate increases, with hiring in particular still strong.
“As we go forward…risks are going to be two sided if we get into more restrictive or further into restrictive territory,” she said, “so we’ll be balancing those considerations.”
Michael S. Barr – Governor – Neutral
November 15
From Bloomberg (here). “I think that it is the case that we are going to see significant softening in the economy,” he told the Senate Banking Committee during a hearing in Washington on Tuesday. “Inflation is far too high.”
Christopher J. Waller – Governor – Hawkish
November 13
From Bloomberg (here). Federal Reserve Governor Christopher Waller said “we’ve still got a ways to go” before the US central bank stops raising interest rates, despite good news last week on consumer prices.
“These rates are going to stay — keep going up — and they’re going to stay high for a while until we see this inflation get down closer to our target,” Waller said Monday at a UBS Group AG conference in Sydney. “We’ve still got a ways to go. This isn’t ending in the next meeting or two.”
“It’s good finally that we saw some evidence of inflation starting to come down,” Waller said. “We’re going to need to see a continued run of this kind of behavior on inflation slowly starting to come down before we really start thinking about taking our foot off the brakes here.”
“7.7% CPI inflation is enormous,” he said. “It’s really not so much about the pace any more, it’s where we’re going end up. And where we end is going to be driven solely by what happens with inflation.”
November 16
From Bloomberg (here). “The data of the past few weeks have made me more comfortable considering stepping down to a 50 basis-point hike,” Waller said at an event in Phoenix. “But I won’t be making a judgment about that until I see more data.”
“I cannot emphasize enough that one report does not make a trend,” he said. “It is way too early to conclude that inflation is headed sustainably down.”
“I expect that getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year,” he said. “We still have a ways to go.”
Full speech from FRB website (here).
Michelle W. Bowman – Governor – Neutral
No recent statements.
Lisa D. Cook – Governor – Neutral
November 15
From Reuters (here). “Monetary policy is, as we all know, a blunt instrument,” Cook said at a Bank of Canada event on diversity, equity and inclusion in economics, finance and central banking. “The focus for the Federal Reserve is on addressing inflation, and we want a sustainable, strong labor market.”
Philip N. Jefferson – Governor – Neutral
No recent statements.
John C. Williams – New York Fed President – Dovish
November 16
From Reuters (here). “Restoring price stability is of paramount importance because it is the foundation of sustained economic and financial stability. Price stability is not an either/or, it’s a must-have,” he said.
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
November 17
From CNBC (here). “Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” he said.
Even using assumptions he characterized as “generous” regarding the progress the Fed has made so far in its inflation fight, he noted in a series of slides that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
“To attain a sufficiently restrictive level, the policy rate will need to be increased further,” he added in the presentation.
Bullard’s presentation contended that 5% could serve as the low range for the where the funds rate needs to be, and that upper bound could be closer to 7%.
Bullard’s slides from St. Louis Fed (here).
Susan M. Collins – Boston Fed President – Neutral
November 19
From Reuters (here). “We’re now in a phase where deliberate increments – all of the possible increments – should be on the table as we decide what is sufficiently tight,” Collins told CNBC. “Seventy-five still is on the table; I think it’s important to say that as well.”
“We’re starting to see some promising signs, although certainly we’re not seeing clear consistent evidence of the kind of softening in labor markets, the kind of dynamic that we would like to see and service sector prices are still very high,” Collins said in the television interview. “I do not see clear, significant evidence that the overall inflation rate is coming down at this point.”
In remarks opening a conference on employment issues at her bank, Collins said “I look at current conditions and remain optimistic that there is a pathway to reestablishing price stability with a labor market slowdown that entails only a modest rise in the unemployment rate.”
Esther L. George – Kansas City Fed President – Hawkish
November 16
From Reuters (here). “I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there,” George said.
November 22
From Reuters (here). “The dynamics of this excess saving and the distribution…is a key factor shaping the outlook for output, inflation and certainly for interest rates,” George said during an economics conference hosted by the Central Bank of Chile in Santiago. “Higher saving of course can lessen a precautionary pullback in consumption, and it could well take a higher interest rate for some time to convince households to hold on to their savings rather than spend it down, and that of course (is) adding to inflationary pressure.”
Loretta J. Mester – Cleveland Fed President – Neutral
November 22
From CNBC (here). “We’re going to have more work to do, because we need to see inflation really on a sustainable downward path back to 2%,” she said in a live “Closing Bell” interview with Sara Eisen. “We’ve had some good news on the inflation front, but we need to see more good news and sustained good news to make sure that we are returning to price stability as soon as we can.”
“We’re at a point where we’re going to enter a restrictive stance of policy. At that point, I think it makes sense that we can slow down a bit the … pace of increases,” she said. “We’re still going to raise the funds rate, but we’re at a reasonable point now where we can be very deliberate in setting monetary policy.”
November 22
From Bloomberg (here). “Given the high level of inflation, restoring price stability remains the number one focus of the FOMC,” Mester told a virtual event Tuesday hosted by her bank, referring to the rate-setting Federal Open Market Committee. “We’re committed to using our tools to put inflation on a sustainable downward trajectory to 2%.”
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 19
From Bloomberg (here). “If the economy proceeds as I expect, I believe that 75 to 100 basis points of additional tightening will be warranted,” Bostic said in prepared remarks for a speech in Fort Lauderdale, Florida, on Saturday. “It’s clear that more is needed, and I believe this level of the policy rate will be sufficient to rein in inflation over a reasonable time horizon.”
“In terms of pacing, assuming the economy evolves as I expect in the coming weeks, I would be comfortable starting the move away from 75-basis-point increases at the next meeting,” Bostic told the Southern Economic Association annual meeting.
“I do not think we should continue raising rates until the inflation level has gotten down to 2%. Because of the lag dynamics I discussed earlier, this would guarantee an overshoot and a deep recession,” he said.
“If it turns out that that policy is not sufficiently restrictive to rein in inflation, then additional policy tightening actions may be appropriate,” Bostic said. “On the other hand, if economic conditions weaken appreciably — for example, if unemployment rises uncomfortably — it will be important to resist the temptation to react by reversing our policy course until it is clear that inflation is well on track to return to our longer-run target of 2%.”
Mary C. Daly – San Francisco Fed President – Dovish
November 21
From Bloomberg (here). “As we work to bring policy to a sufficiently restrictive stance — the level required to bring inflation down and restore price stability — we will need to be mindful,” Daly told the Orange County Business Council on Monday in Irvine, California. “Adjusting too little will leave inflation too high. Adjusting too much could lead to an unnecessarily painful downturn.”
Daly told reporters after the speech that she would be entering the meeting with the full range of rate-hike options on the table, while repeating that she sees rates peaking at least as high as 5%.
“I tend to be on the more hawkish side of the distribution, if you will, as I think about what needs to be done here and where the risks lie,” she said on a telephone conference call. “5% to me is a good starting point,” she said, adding that it could go high if needed.
Charles L. Evans – Chicago Fed President – Dovish
No recent statements.
Patrick T. Harker – Philadelphia Fed President – Hawkish
November 15
From Bloomberg (here). “In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance,” Harker said Tuesday in prepared remarks to the Global Interdependence Center in Philadelphia. Sometime next year, “I expect we will hold at a restrictive rate for a while to let monetary policy do its work.”
Neel Kashkari – Minneapolis – Hawkish
November 17
From Reuters (here). “I need to be convinced that inflation has at least stopped climbing, that we’re not falling further behind the curve, before I would advocate stopping the progression of future rate hikes,” he told the Minnesota Chamber of Commerce in an event webcast by the regional Fed bank. “We’re not there yet.”
Recent data showing consumer and wholesale prices cooled in October provide “some evidence that inflation is at least plateauing,” he said, but “we cannot be overly persuaded by one month’s data.”
“It’s an open question of how far we are going to have to go with interest rates to bring that demand down in the balance,” he said.
Lorie K. Logan – Dallas – Neutral
No recent statements.