A Roundup of Recent Fed Speeches

All eyes are currently on Fed Head Yellen’s Friday speech over at the Jackson Hole Summit. I therefore thought that now would be a good time to give y’all a roundup of the most recent Fed statements. I’ll only be focusing on the voting members of the FOMC, though, since they’re the ones who actually get to decide on whether or not to hike rates.

Oh for those who don’t know, the Federal Open Market Committee (FOMC) is composed of the Board of Governors, who always get to vote on monetary policy, and the Reserve Bank Presidents. There are eleven Reserve Bank Presidents, but only four get to vote as FOMC members on an annual rotating basis. The other non-voting members still get to share their views, though.

Anyhow, here are this year’s voting members:

  • Janet L. Yellen
  • William C. Dudley
  • Lael Brainard
  • James Bullard
  • Stanley Fischer
  • Esther L. George
  • Loretta J. Mester
  • Jerome H. Powell
  • Eric Rosengren
  • Daniel K. Tarullo

Okay, let’s see what their most recent thoughts on monetary policy are.

Janet L. Yellen

  • Leaning towards dovish camp
  • U.S. Fed Head
  • Board of Governors

There was no press conference during the July FOMC statement, so the last time Fed Head Yellen talked about monetary policy was during her June testimonies. I have a detailed write-up on that, which you can read here.

But with regard to monetary policy, Yellen favored a slower path to hiking rates back then. And she listed down two reasons: (1) persistent subdued inflation levels and overall mixed signals for growth and (2) the Fed doesn’t have enough room to cut further if the economy doesn’t grow as forecasted or low inflation persists.

It would be interesting to see if Yellen will change her tune this Friday.

William C. Dudley

  • Hawkish
  • U.S. Fed Vice Head
  • New York Fed President

In an exclusive August 16 interview with the FOX Business Network, Dudley showed his hawkish feathers when he said that: “We are edging closer towards the point in time when it will be appropriate to raise rates further,” on the assumption that growth will pick up in the second half of the year. Even better, Dudley was asked if he sees a potential rate hike in September and he replied that “Yeah, I think it is possible.”

Later, during the New York Fed’s August 18 Economic Press Briefing, Dudley was asked about his thoughts on the lower-than-expected reading for Q2 GDP growth. And Dudley replied by saying that the 1.2% rate of expansion was “very misleading” because it included “a very significant drag from inventories.” This is also something I pointed out in my Review of the Advanced Q2 U.S. GDP Report. Dudley chose the optimistic view with regard to inventories, though, which clearly marks him as a hawk.

Moving on, Dudley also added that he’s “reasonably confident that growth is going to be 2% or more in the second half of the year.” In addition, “It’s really the jobs that are the metric that drive the decision about when the timing is right to snug up interest rates.”

Lael Brainard

  • I’m dovish until the data says otherwise
  • Board of Governors

Unfortunately, Brainard hasn’t given a post-FOMC speech yet. Also, her last public statement was during her June 3 speech at the Council on Foreign Relations in Washington.

That speech was quite revealing, though, in that it showed that Brainard is a very cautious person when she said that:

“In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals. In addition, because the depressed level of the neutral rate of interest reflects forces that are likely to persist, the appropriate path of policy is likely to remain shallow for several years.”

In simpler terms, she’s biased towards a rate hike like most Fed officials, but she wants to see strong growth and lower global risks before considering a rate hike. And given that GDP growth did slow down in Q2 and the Q1 reading was revised lower, as well as remaining worries over Brexit, as revealed by the minutes of the July FOMC meeting, it’s probably safe to say that Brainard belongs in the dovish camp.

James Bullard

  • I’m a dove (for now)
  • St. Louis Fed President

James Bullard is kinda hard to pin down because he keeps flip-flopping. He was, for example, a dove back in February, then became an ardent hawk in late March, only to become a rather cautious hawk by late May. And as of August 17, he seems to have become a dove yet again.

To be more specific, Bullard said that

Given the framework, we don’t have to put a lot of weight on September or even December, because we’re only 25 basis points away from neutral.”

“It probably doesn’t matter too much exactly when we move. It’s more that the path is much flatter than what’s currently being projected.”

Bullard’s switch to the dovish camp was apparently because of the poor Q2 GDP reading, since he was very clearly less upbeat on it compared to Dudley, saying that:

“A rebound in economic growth at this point is pretty important because that 1.2% year-on-year is a low number. That’s below almost anyone’s estimate of trend, and it’s not something you can just say we had a bad quarter or there were seasonal effects.”

Stanley Fischer

  • Slightly hawkish?
  • Board of Governors

In an August 21 speech, Fischer said that we are close to our targets,” referring to the Fed’s dual mandate of for maximum employment and 2% inflation. He heaped praises on the jobs data, but mellowed a bit with regard to inflation, pointing out that annual inflation is below 1%.

However, he’s apparently an optimist since he also pointed out that the core PCE inflation is at 1.6%, which “is within hailing distance of 2 percent.” He did lament a bit about low productivity, but he was quick to add that “monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth.”

He added further that resolving low productivity depends on “effective fiscal and regulatory policies.” Overall, Fischer was hawkish on the economy, but he did not explicitly say his own monetary policy bias.

Esther L. George

  • Rate Hike Now!
  • Kansas City Fed President

The last time Esther L. George gave a speech related to monetary policy or economic outlook was back in May. However, we can safely lump her with the hawks. After all, she was the only one who voted for a 25 bps rate hike during the July FOMC statement. Surely, it can’t get any more hawkish than that!

July FOMC Meeting Voting Record

July FOMC Meeting Voting Record

Loretta J. Mester

  • Leaning towards hawkish camp
  • Cleveland Fed President

Mester’s last speech on monetary policy was on July 13, which is obviously before the July 27 FOMC statement. However, it does provide clues to how she thinks, and she is clearly leaning towards the hawkish camp. This is shown when she expressed concern over delaying hikes, as follows:

“Now, some might argue that in an abundance of caution, we should wait for clarity on these issues, and I agree that there are risks to acting too soon. But there are also risks to forestalling rate increases for too long when we are continuing to make cumulative progress on our policy goals. Waiting too long increases risks to financial stability and raises the chance that we would have to move more aggressively in the future, which poses its own set of risks to the outlook. I believe waiting too long also jeopardizes our future ability to use the nontraditional monetary policy tools that the Fed developed to deal with the effects of the global financial crisis and deep recession.”

She also clarified that she voted against a rate hike during the June FOMC meeting because of uncertainty due to the Brexit referendum.

And given the revelation (according to the July FOMC meeting minutes) that the actual Brexit process “could result in spells of elevated volatility in global financial markets” that “could affect economic and financial conditions in the United States,” we can safely conclude that Mester voted against a rate hike during the July meeting due to Brexit-related concerns.

Jerome H. Powell

  • I’m a dove. Deal with it.
  • Board of Governors

Powell’s views are similar to Mester’s in that his main beef is not with the U.S. economy, but rather with global developments, saying in an August 7 interview with the Financial Times that:

“The issue is that if you look around the world there are just a lot of risks that could affect us. So it is a US economy that is probably pretty close to its pattern of the last seven years, but the risks to us from the global economy are to the downside.”

Unlike Mester, however, Powell is very clearly a dove when he said that hiking is not easy “in a world where everyone else is cutting and demand is weak around the world.”

And while Powell doesn’t really see any major problems with the U.S. economy, he thinks that the Fed “can be patient” because inflation remains subdued.

Eric Rosengren

  • Historically a dove
  • Boston Fed President

Rosengren doesn’t really do a lot of interviews and his latest speech on monetary policy was on June 6. However, he has a history of being a dove. Also, he did say in that June 6 speech that “The normalization process has been very gradual – appropriately so, given the very gradual return to full employment and to the Federal Reserve’s 2 percent inflation target.” Rosengren is therefore biased towards a slower path to tightening, making him a dove.

Daniel K. Tarullo

  • I’m also a dove. Deal with that as well.
  • Board of Governors

The last time Tarullo discussed his views on monetary policy was on July 6 when he was interviewed by the Wall Street Journal. And in that interview, Tarullo explained why he has been favoring a wait-and-see approach for some time:

“Were the economy to pick up more rapidly, which would be, I think, a welcome development, we have the tools to respond appropriately. But were things to slow down, we obviously would face a more limited set of tools. And so, for all those reasons, I have for some time now—this is not a Brexit-driven issue. For some time now, I have thought that it was the better course to wait to see more convincing evidence that inflation is moving towards and would remain around the 2% target.”

Overall, Fed officials have mixed views, with six leaning towards the dovish camp or are explicitly dovish while only four are somewhat hawkish, although only one of the four actually voted for a hike. In any case, it would be interesting to see what Yellen has to say on Friday.

 


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