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In this article:
Key Takeaways from recent speeches and interviews from Fed Governor’s, Summers, and Dudley
Insightful visuals relevant to recent Fed Speak
45 Key Stats the FOMC are watching. Compare recent values vs values at last FOMC meeting date
Blackout
Calendar of upcoming Fed related events
Informative Fed Watch research with charts and tables
Key Takeaway Highlights
Rates could be well above 4% if prices don’t cool
Markets underpricing higher for longer rates
Fed must defend inflation expectations anchor
Good CPI report shouldn’t affect Sept. decision
Lots of wage pressure
Labor market key thing to watch
9/2 Larry Summers on Bloomberg’s Wall Street Week
Will be surprised if the Fed reaches their 2% inflation target without an unemployment rate that approaches or exceeds 6%
An increase in higher participation with the same unemployment rate means more people are working and earning and spending and that in turn will raise the demand for labor
9/6 Barkin interview by the FT
Bias in general towards moving more quickly
Rates must stay high until inflation eases
Real rates need to be above zero
9/7 Mester at MNI webcast
Backs Fed discussing MBS sales in future
Carefully watching gauges of inflation expectations
Doesn’t expect cuts in 2023
Backs Fed hiking rates above 4% by ‘23
Not convinced that inflation has peaked
Focus is path of rates, not size of hike at next meeting
9/7 Collins speaks in podcast
Inflation simply to high
Returning inflation to 2% is really job one
Premature to specify 9/21/22 policy decision
9/7 Brainard at event in New York
Uncertainty on policy lag creates overtightening risk
Takes time for full effect of tightening to be felt
Fed must defend inflation expectations anchor
Need several months of data to confirm slower inflation
Fed in it for as long as it takes to curb inflation
Lower retail margins to ease price pressure
Fight inflation for as long as it takes
Very focused on housing sector
Need for clear regulatory guardrails for crypto
Banks need to be intermediaries in a future US CBDC
9/7 Barr Speaks on Financial System Fairness and Safety in Washington
Committed to working to bring down inflation
Wants Congress to act on crypto Stablecoins
Fed’s role in dealing with climate change narrow
Focus on climate issues to be risk based
9/7 Fed’s Beige Book https://www.federalreserve.gov/monetarypolicy/beigebook202209.htm
High prices and a tight labor market weighed on US economic prospects
The outlook for future economic growth remained generally weak, with contacts noting expectations for further softening of demand over the next six to twelve months
Residential real estate weakened amid a drop in home sales in all districts
Price levels “remained highly elevated,” but nine districts reported some degree of moderation in their rate of increase
High prices and a tight labor market weighed on US economic prospects over the next year
9/8 Powell speaks at Monetary Policy Conference at Cato
History cautions against prematurely loosening policy. Fed will act forthrightly until Inflation job is done.
Very important that inflation expectations are anchored
Fed’s job is to ensure inflation expectations are anchored
Framework meant to anchor inflation expectations at 2%
Labor market demand remains very strong
Hope to receive period of growth below trend
Below trend growth will give better labor market balance
Money supply/Inflation relationship has been unstable
Monetary aggregates don’t play key role in policy
Don’t see dual mandate goals as being in conflict
Don’t see a case for Fed to move to a single mandate
Prepared to adjust Balance Sheet runoff as economy needs
Crypto don’t appear to offer public interest as payment
Stablecoins can play a role in our financial system
Federal fiscal policy not on sustainable path. US needs to get back to sustainable fiscal path soon.
The neutral policy rate estimates are much less than inflation of 6.3% (Core inflation) as measured by the Fed’s preferred gauge. Consumers expect 4.8% inflation over the next year and 2.9% over five to 10 years, according to the University of Michigan’s survey.
UMich Inflation expectations
9/8 Evans speaks at DuPage forum
Possible that the number of vacancies can decline without serious increases in unemployment
Worry about inflation expectations getting out of hand
If the public begins to question our commitment to getting inflation back down then it could broaden out
Job one is to get inflation back to our 2% objective in some reasonable period of time
9/9 Bill Dudley in Bloomberg Interview
Key thing to watch is status of US Labor market
Labor market much to tight to be consistent with 2% inflation
Premature to say collective policy tightening overdone
Fed to have tighter policy for longer than most expect
Fed’s MBS worth less than Fed purchased them for. MBS underwater.
Thinks Fed won’t exacerbate MBS losses by selling mortgages and booking the losses
Fed’s return on assets will be less than the cost of their liabilities as Fed raises rates
9/9 Waller speaks at event in Vienna
If inflation slows, rates may peak under 4%
Rate peak could be well above 4% if prices don’t cool
Hike until compelling evidence prices cooling
Favors raising rates until at least early next year
Will watch to see if Fed QT impacting longer term rates
Fed Balance sheet shrinking may already be priced in
9/9 George with PIIE
Passthrough lag calls for steady, not fast, policy move
Fed can’t reverse supply shocks spurring prices
Fed must determine policy course through observation
Balance sheet trimming may involve asset sales
Supports getting back to Treasuries based balance sheet
Focused on path of rates, not individual meetings
Fed has some room to run and bring interest rates up
9/9 Bullard in Bloomberg interview
Leans more strongly to 75bp hike in Sept.
Good CPI report shouldn’t affect Sept. Fed call
Markets underpricing higher for longer rates
Rates after catch up will be more flexible
Labor market tight, lots of wage pressure
45 Key Stats the FOMC are likely watching. Compare recent values vs values at last FOMC meeting date.
Blackout Calendar. Starts 9/10/22 through the 22nd.
CPI report on 9/13 during Blackout
Calendar of Upcoming Fed Related Events
Informative Fed Watch Research
MoM CPI
ISM Gauge Shows the Economy Can Take Aggressive Hikes
If potential GDP growth indeed has slowed, the Fed will have to engineer an even larger decline in the economy than anticipated to generate the “sustained period” of below-trend growth Powell said would be needed.
More hikes despite plunging global GDP. Potentially lasting implications for asset prices and deflation.
M2. What stops a normal dump in commodities?
Mean reversion of risks. Crude Oil and T-Bond futures
YoY PPI stretch to match 1974.
US Federal Funds Target Interest Rate History
A stabilization in liquidity has likely been a major factor in risk assets recovery since June, the Treasury (TGA) component has masked the tightening coming directly from the Fed and the private sector.
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