Hikes are coming but expect much less forward guidance than in the past.
An update on the latest FOMC participants’ statements on inflation and possible path for monetary policy.
We have heard from several participants: Bullard, George, Barkin, Bostic, Daly, Harker, and Kashkari.
What to keep in mind
FOMC is determined in delivering but unsure about how many hikes it will take. Most participants have expressed concerns about the level of inflation. Most participants stressed that monetary policy is not on a preset course and remains data dependent. In fact, Bullard (a voter in 2022) stressed that the current environment is more data dependent than the past. Indeed: uncertainty remains very high. In our view, the incoming data on inflation will largely set monetary policy. As such, we also anticipate much less forward guidance than in the past.
FOMC-meter
Dovish
Leal Brainard
John Williams
Charles Evans
Mary C. Daly
Neel Kashkari
Neutral
Jerome H. Powell
Michelle W. Bowman
Thomas I. Barkin
Hawkish
Christopher Waller
James Bullard
Esther L. George
Loretta J. Mester
Raphael Bostic
Patrick T. Harker
Note: FOMC voters are bolded.
Recent FOMC participants' statements - most recent statements in blue
Jerome H. Powell – Chair – Dovish
January 26 (FOMC press conference)
From Fed transcripts (here). Page 7: “I also would point out that there are other forces at work this year, which should also help bring down inflation. We hope including improvement on the supply side, which will ultimately come at the timing and pace of that are uncertain. And also, fiscal policy is going to be less supportive of growth this year, not at the level of economic activity but the fiscal impulse to growth will be significantly lower. So there are multiple forces which should be working over the course of the year for inflation to come down. We do realize that the timing and pace of that are highly uncertain and that inflation has persisted longer than we thought. And, of course, we’re prepared to use our tools to assure that higher inflation does not become entrenched.” Page 16: “since the December meeting, I would say that the inflation situation is about the same but probably slightly worse. I’d be inclined to raise my own estimate of 2022 core PCE inflation, let’s just go with that, by a few tenths today. But we’re not writing down an SEP at this meeting, but I think it’s — it hasn’t gotten better. It’s probably gotten just a bit worse, and that’s been the pattern.”
Lael Brainard – Governor – Dovish
No recent statements.
Christopher J. Waller – Governor – Hawkish
No recent statements.
Michelle W. Bowman – 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
February 1
From Reuters (here): “We are going to be have to be more nimble, faster, better at reacting to inflation data and other developments as we go through this year,” Bullard said. “It’s going to be a more data-dependent environment.” “We are cognizant of the inflation issue, we’re moving on the policy rate, but we’re also going to move on the balance sheet so we’re not that far from reaching neutral if you are willing to consider both of those,” Bullard said, referring to the interest rate that would neither speed nor slow the economy.
From Bloomberg (here): “Fifty basis points, I don’t think helps us — at least sitting here today, I don’t think that really helps us,” Bullard said Tuesday in a Reuters interview live-streamed on Twitter. “I think we can get a disciplined approach to raising the policy rate and the expectations are already in markets.” “The markets are pricing in five. I think that is not too bad a bet right now. A lot is going to depend on how inflation develops during the year,” he said. “I don’t think you are going to see inflation moderate here in the next couple of reports. But by the time you get to the middle of the year you will see whether that is developing or not.” “We can take some steps now to better position monetary policy and then get to the middle of the year and see where we are,” he said. “By the time we get to July August time-frame, we’ll be able to assess.”
Esther L. George – Kansas City Fed President – Hawkish
January 31
From Kansas City Fed website (here). Page 6: “With inflation running at close to a 40-year high, considerable momentum in demand growth, and abundant signs and reports of labor market tightness, the current very accommodative stance of monetary policy is out of sync with the economic outlook.” Page 7: “What we do on the balance sheet will likely affect the path of policy rates and vice versa. For example, more aggressive action on the balance sheet could allow for a shallower path for the policy rate. Alternatively, combining a relatively steep path of rate increases with relatively modest reductions in the balance sheet could flatten the yield curve and distort incentives for private sector intermediation, especially for community banks, or risk greater economic and financial fragility by prompting reach-for-yield behavior from long-duration investors.” Page 8: “All in all, it could be appropriate to move earlier on the balance sheet relative to the last tightening cycle.” […] “By holding long duration assets, the Fed’s balance sheet is depressing the price of duration, by lowering longer-term yields by as much as 1.5 percentage points according to some rules-of-thumb, incentivizing reach-for-yield behavior and increasing fragility within the financial system.”
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
January 31
From Bloomberg (here): “I’d like the Fed to get better positioned. I think we’ve got a good part of the year to get there,” he said. “That position is somewhere closer to neutral, certainly than we are now, and I think the pace of that just depends on the pace of inflation.”
Raphael Bostic – Atlanta Fed President – Hawkish
January 29
From FT (here): “Every option is on the table for every meeting,” Bostic said. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that.” “Our policy path is not a constriction path. It’s a less accommodative path,” he said. “If we do the three [interest rate increases] that I have in mind, that’ll still leave our policy in a very accommodative space. “I don’t think there’s going to be a lot of constraint on growth as we remove these emergency actions.”
Mary C. Daly – San Francisco Fed President – Dovish
February 2
From MarketWatch (interview here): “It is clear that inflation is too high and the labor market is strong, so we do need to act,” Daly said. “I do absolutely expect the policy rate to rise over the course of the year, but by how much and how quickly and during what meetings — those things I’m going to leave open,” Daly said. “I don’t want to pronounce today what I think we will be doing at each and every meeting for the rest of 2022.” “I’m very open minded — very data dependent on this” she added. Asked about her forecast for inflation by the end of the year, Daly said it is unlikely that the Fed can push it all the way back to 2%. “I don’t see evidence the labor market is overheated,” Daly said. “I see some of this current heat that people point to as just a temporary factor,” she said.
January 31
From Bloomberg (here): “We are not behind the curve,” Daly said in an interview during a Reuters Breakingviews event. “When you’re trying to get an economy from extraordinary support to one that’s going to just gradually put it on to a self-sustaining path, you have to be data-dependent — as we say — but you also have to be gradual and not disruptive.” “You don’t want, in my judgment, to overreact and ratchet up the rate so quickly that, as the rates percolate through the economy, it bridles it more than you think.” Citing the Fed’s December forecasts, Daly noted that four increases this year — if that is what transpired — would lift rates to 1.25% and “that is quite a bit of tightening, but it is also quite a bit of accommodation.”
Charles L. Evans – Chicago Fed President – Dovish
No recent statements.
Patrick T. Harker – Philadelphia Fed President – Hawkish
February 1
From Bloomberg (here): “I would be supportive of a 25 basis-point increase in March. Could we do 50? Yeah. Should we? Well, I’m a little less convinced of that right now,” Harker said Tuesday in an interview on Bloomberg Television. “But we’ll see how the data turn out in the next couple of weeks.” “If inflation stays where it is right now and continues to start to come down, I don’t see a 50 basis-point increase. But if we see a spike, then I think we might have to act more aggressively,” he said. “Right now, I think four 25 basis-point increases this year is appropriate but there’s a lot of risk here,” […] “This is where we need to keep flexible with respect to policy. We can’t define a path right now and just stick to it. We’ve got to look at the data,” Harker said.
Neel Kashkari – Minneapolis – Dovish
January 28
From Reuters (here): “The way we bring that into balance is, we will tend to tighten monetary policy by raising interest rates,” Kashkari told NPR News. “That would then not tap the brakes on the economy, but it would let our foot off the accelerator just a little bit,” he said, adding that “we just don’t know” how many rate hikes that will take. “A lot of the reason that prices are high right now are temporary factors related to the COVID,” Kashkari said. “The hope is that as the supply chains sort themselves, out some of these price pressues will naturally relieve themselves. And that means the Federal Reserve will have to do less.” “We have to see how the data comes out,” he said. “We just don’t know – it’s going to depend on what happens to supply chains, what happens to workers.”