As usual, the past week has been a busy one for Fedwatchers looking for clues about the central bank’s next move ahead of the Federal Reserve’s quiet period ahead of its next policy meeting.
And this time, the biggest Fed news comes in a week that has nothing to do with policy, when the Fed said on Wednesday that Fed Chairman Jerome Powell was positive for Covid-19.
According to the federation, Powell was experiencing mild symptoms and was working remotely while in isolation at home.The announcement comes 13 days before the start of the Fed’s two-day policy meeting on January 31.
What’s in store for investors on Feb.1 announcement Several federal officials this week signaled they would prefer to cut interest rates, while continuing to raise and maintain interest rates high.
Officials are encouraged by signs of a slowdown in inflation, although many still point to high service prices excluding housing, which Fed Governor Chris Waller put it is hard to “cheat”.
Here’s a summary of the Fed’s speech last week, ahead of the Fed’s next policy announcement:
Federal Reserve Vice Chairman Lael Brainard
Despite recent moderation, inflation remains high, and policy must be sufficiently restrained for some time to ensure that inflation returns to 2 percent on a sustainable basis.
In a speech at the Chicago School of Business on Thursday, Brainard said the central bank should continue its restrictive monetary policy despite encouraging signs that inflation has eased.
Brainard said the recent slowdown in wage growth and encouraging price trends in primary goods and non-residential services — indicating that we are not experiencing a 1970s-style wage-price spiral.
When asked what kind of impact unwinding the Fed’s balance sheet is having, Brainard estimated the impact would probably be 50-75 basis points.
Federal Governor Chris Waller
There appears to be little turbulence ahead, so I currently favor a 25-basis-point hike at the FOMC’s next meeting later this month.
Speaking at the Council on Foreign Relations on Friday, Fed Governor Chris Waller was encouraged by the December CPI report, but noted that monthly inflation was due to start raising interest rates in March.Scale basically moved sideways all year.
Waller welcomed the moderation in wage growth, but said wages still needed to come down to bring down inflation.
Waller also said that the market is more optimistic than the Fed that inflation will fall faster this year, which will prompt the central bank to stop raising rates.
Waller said it would be nice if that happened, but the Fed needs to manage the risk of inflation not coming back.For these reasons, Waller will continue to raise rates, but at a slower pace.
Beyond that, we have a long way to go toward our 2 percent inflation goal and I expect that we will support the tightening of monetary policy.
Susan Collins, president of the Boston Federation
There is more work.Before holding rates at a sufficiently restrictive level for some time, I suspect further rate hikes will be needed, perhaps at a slower pace, depending on earnings data.
Boston Fed President Susan Collins said Thursday at the Boston Federal Reserve that she expects more rate hikes, but at a slower pace, still driven by strong service inflation.
Collins thinks rates — which are in the 4.25-4.5% range — will need to rise above 5% before they stay there for some time.
“Rates are in the bounds and we may be approaching the peak,” Collins said, “so it makes sense to raise rates slowly and balance the risks of lowering inflation and materially increasing unemployment.”
Dallas Federation President Lori Logan
To be clear, I don’t see the slow speed argument as being based on recent data…slow speed is just the way we can make the best decisions.
Speaking in Austin, Texas on Wednesday night, Dallas Fed President Lori Logan said she wants to slow the pace of rate hikes to ensure the tightrope walks the economy while keeping inflation under control.Logan said she is looking at fiscal conditions and if they loosen, the Fed could always raise rates further — even after a pause.
“That’s why I supported the FOMC’s decision last month to slow the rate hike,” Logan said.
“And the same considerations suggest that they will slow down the pace further in the upcoming meeting.”
Patrick Hacker, president of the Philadelphia Federation
I expect we will increase rates this year, but in my mind, the days of raising 75 points at a time are certainly over.In my view, a 25 basis point increase would be appropriate going forward.
Speaking in Delaware and New Jersey this week, Philadelphia Fed President Patrick Harker said he would prefer to slow the pace of rate hikes and that at some point this year the policy rate is expected to be restrictive enough to keep rates in place and allow interest rates to rise.Monetary policy does the job.
Harker said the shrinking of the Fed’s balance sheet would also eliminate a large amount of shelter space.
St.Louis Federation President James Bullard
Why don’t we go where we have to go?…Why did it stop?
St.Louis Fed President James Bullard told the Wall Street Journal this week that Fed officials must raise the Fed funds rate above 5% “as fast as we can” before ending rate hikes to bring down inflation.
Asked if he was open to another half-point increase at the Fed’s upcoming meeting, Bullard said, “We’re not going where we’re going?… Why stop?” he replied.
Looking ahead, officials are eyeing December’s job price index, which, at the end of the month, for further signs wage growth is slowing.
The Fed’s forecast from December is that officials expect to raise rates by more than 5% this year, from a range between 4.25% and 4.5%.
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