All the ducks but Powell’s silence in a row
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
In the last week we have heard from: Powell, Brainard, Barr, Bowman, Cook, Williams, Bullard, Mester, Barkin, and Evans.
Keep in mind
What all FOMC participants (including Powell) said this week was uneventful because they reiterated previous messages: bring the FF rate to a sufficiently restrictive level (in our view, north of 5%) and keep it there until there is enough evidence inflation is on its way back to target.
(The only real news was NY Fed President Williams who said “We’are seeing some forward-looking indicators that inflation is turning” […] “We are moving now, and into next year, with a lower inflationary trend”)
But the BIG news/surprise of the week was what Powell did NOT say (please, see our ad-hoc comment on this point). In a nutshell, by not pushing against the recent easing in FCIs, Powell has implicitly sent the message “we are fine with it because we think it is “earned” by the data”. Powell knows very well how to push against the market, given he did it last August at Jackson Hole. He chose not to do it this time.
The coming dots can be a bit more hawkish than markets are expecting. But we suspect that at this point it would take a Powell’s turn to have a significant impact on rates. It can happen but in our view it is not the baseline unless we get a very strong core CPI next week.
Jerome H. Powell – Chair – Neutral
December 1
Our ad-hoc comment (here).
Lael Brainard – Governor – Dovish
November 28
From Fed Board (here). “It is vital for monetary policy to keep inflation expectations anchored, because inflation expectations shape the behavior of households, businesses, and workers and enter directly into the inflation process.”
“In monitoring inflation expectations for purposes of risk management, not only the median but also the distribution of inflation expectations can provide important information about how inflation expectations may be changing. Survey measures suggest that the median of longer-term inflation has remained within pre-pandemic ranges consistent with 2 percent inflation. However, starting in 2021, there has been a greater dispersion than usual of views about future inflation in survey responses.”
“A protracted series of adverse supply shocks could persistently weigh on potential output or could risk pushing inflation expectations above target in ways that call for monetary policy to tighten for risk-management reasons. More speculatively, it is possible that longer-term changes—such as those associated with labor supply, deglobalization, and climate change—could reduce the elasticity of supply and increase inflation volatility into the future.”
Michael S. Barr – Governor – Neutral
December 1
From Bloomberg (here). “We’re in restrictive territory. The question we’re working on is: is it sufficiently restrictive? How much more restrictive do we need to be in order to see the kinds of changes in the economy that will eventually lead to a reduction in inflation,” he said Thursday.
“I think that the rate is going to have to stay high for a long period of time,” he said. “We’re not thinking about loosening. We’re still very much 100% focused on getting to a sufficiently restrictive rate and staying at a restrictive rate for a long-enough time to bring inflation down to 2%.”
Christopher J. Waller – Governor – Hawkish
No recent statements.
Michelle W. Bowman – Governor – Neutral
December 1
From Bloomberg (here). “As we approach a sufficiently restrictive level of the federal funds rate, it will become appropriate for us to slow the pace of rate increases as we determine how high we need to raise the target range,” Bowman said at an event hosted by the KBW CEO strategy forum.
“Until I see our actions actually having some impact that would lower the rate of inflation, I think that my expectation would be that we would have a slightly higher rate than I had anticipated in September,” Bowman said.
Lisa D. Cook – Governor – Neutral
November 30
From Bloomberg (here). “What policy rate is sufficiently restrictive we will only learn over time by watching how the economy evolves. Given the tightening already in the pipeline, I am mindful that monetary policy works with long lags,” Cook said Wednesday in remarks prepared for an event with the Detroit Economic Club. “Thus, as we get closer to that uncertain destination, it would be prudent to move in smaller steps.”
“How far we go, and how long we keep rates restrictive, will depend on observed progress in bringing down inflation,” Cook said. “But rest assured, we will keep at it until the job is done.”
Philip N. Jefferson – Governor – Neutral
No recent statements.
John C. Williams – New York Fed President – Dovish
December 1
From Bloomberg (here). “I still think we have a ways to go in terms of where the fed funds target is and where we need to get it to next year in order to get to a sufficiently restrictive stance,” Williams said Thursday during a television interview on Fox Business. “My view is we need to get the federal funds rate above the inflation rate, and sufficiently above the inflation rate to basically bring downward pressure on inflation.”
“We’re seeing some forward-looking indicators that inflation is turning,” the New York Fed chief said. “We’re moving now, and into next year, with a lower inflationary trend.”
Fed Presidents with voting power in 2022
James Bullard – St. Louis Fed President – Hawkish
November 29
From St. Louis Fed (here). “Results based on the latest trimmed mean PCE inflation rate, which is for September, suggested that it would take a policy rate of at least 4.9% to exert downward pressure on inflation. Thus, even under generous assumptions, the policy rate has not yet reached a level that could be considered sufficiently restrictive, according to these calculations.”
“With the moves the FOMC has made this year, we are approaching a point at which we will have removed monetary accommodation and can transition to what I would call ordinary monetary policy—that is, data-dependent policy that looks more like it did in the 1990s.”
“The policy rate will eventually reach a level the FOMC judges sufficient to put meaningful downward pressure on inflation. From there, the FOMC can adjust the policy rate up or down depending on incoming data without first having to get it from near zero up to a level considered appropriate for the inflation environment.
Exactly what that point will be and when it will occur remain to be determined, but I look forward to continuing to work with my FOMC colleagues to fulfill our dual mandate and to return inflation to the Fed’s 2% target.”
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
November 28
From FT (here). “Given where we are in terms of inflation readings, the outlook and the risks, I still put more weight on a higher risk or a higher cost of not doing enough. We know that allowing inflation to be as high as it is and allowing that to continue, it has costs on the economy today, but it also imposes costs on the economy tomorrow.”
“My forecast is that we will see meaningful progress on inflation next year. We won’t be back at our 2 per cent goal for some time — maybe towards the end of 2024. But we’ll see enough progress to keep long-run inflation expectations anchored and that means we could get back to 2 per cent inflation with lower pain to the economy than otherwise. But we are entering a new phase of policy, because we have basically brought the funds rate up to what I think is the beginning of a restrictive stance and we’re moving into the restrictive territory that is necessary in order to get inflation on that sustainable downward path to 2 per cent. So we’ve made progress, and now we just have to continue on the journey.“
“I don’t think we’re near a pause. Given we’re beginning to move into restrictive territory, we have the opportunity to slow the pace of increases and evaluate the effects and make sure we’re being very diligent in setting monetary policy to return the economy to price stability, but also judicious in balancing the risks to minimise the pain of the journey back to price stability. We had one good October CPI report. I would need to see several more of those and more moderation and perhaps even a reduction in core services prices. And we also have to see better balance in the labour market.”
“I look forward to when we’re going to be in a position when we can have those trade-off decisions, in terms of where does policy need to be to meet both sides of our dual mandate? But right now the price stability part of the mandate dominates.“
Fed Presidents with no voting power in 2022
Thomas I. Barkin – Richmond Fed President – Neutral
December 2
From Bloomberg (here). “Labor supply looks like it will remain constrained,” Barkin said Friday in the text of a speech to the Virginia Economic Summit and Forum on International Trade, which was prepared before release of the November payroll report by the US Labor Department. “The Fed’s efforts to bring demand back into balance won’t be easy when Americans still have about $1.3 trillion more in savings than they did pre-pandemic and fiscal stimulus continues.”
“The Fed has taken aggressive action to bring inflation under control, raising the fed funds rate steeply to just under 4% and making clear our intent to do more,” Barkin said. “Even so, we have seen labor demand continue to run ahead of supply.”
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
December 2
From Reuters (here). “We probably are going to have to have a slightly higher peak rate of the funds rate, even as we likely will step down” the pace of rate hikes from the 75-basis-point-per-meeting pace of recent meetings, Evans said at an event in Chicago.
Patrick T. Harker – Philadelphia Fed President – Hawkish
No recent statements.
Neel Kashkari – Minneapolis – Hawkish
No recent statements.
Lorie K. Logan – Dallas – Neutral
No recent statements.