Tim Duy's Fed Watch

Questions for Powell

 

Market participants widely expect the Federal Reserve to raise interest rates at the conclusion today’s FOMC meeting. The only real debate surrounding this meeting regards the Fed’s messaging. Central bankers pivoted to a more hawkish stance in recent weeks, and this shift will be reflected in the statement and accompanying Summary of Economic Projections. But will it be modestly or very hawkish, or somewhere in-between?

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Questions for Powell

 

Market participants widely expect the Federal Reserve to raise interest rates at the conclusion today’s FOMC meeting. The only real debate surrounding this meeting regards the Fed’s messaging. Central bankers pivoted to a more hawkish stance in recent weeks, and this shift will be reflected in the statement and accompanying Summary of Economic Projections. But will it be modestly or very hawkish, or somewhere in-between?

Continued here....

Jobs Report Gives Fed Cover To Retain Gradual Rate Path

The jobs report gives the Fed cover to retain a gradual rate path. To be sure, the rapid pace of job growth will leave them nervous about an unsustainable pace of growth. But the flat unemployment rate remains consistent with their forecasts. In addition, low wage growth indicates the economy has not pushed past full employment. If inflation remains constrained, the Fed would be pretty much on target for this year. That suggests the three-hike scenario should remain in play. But increased confidence in the outlook and risk management concerns will push up enough “dots” in the next Summary of Economic projections toward four hikes for this year.

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Questions

The written testimony accompanying Federal Reserve Chairman Jerome Powell’s visits to Capitol Hill last week left me with more questions than answers. It seems evident that central bankers expect they will need to boost their estimates of appropriate rate hikes either in March of June. It also appears that they would like to make this shift while remaining within the context of the existing policy language of gradualism.

That is a tricky needle to thread, and I understand the motivation. Policy makers simply do not want to spark a sell-off in Treasuries. But the past week has left me wondering if the Fed’s affection for gradualism has left us too complacent about the possibility of a rapid shift away from gradualism. I have lots of questions:

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