With the FOMC statement coming up next week and the Fed communications blackout currently in force, I thought that now would be a very good time to give y’all an updated roundup of the most recent Fed speeches and interviews.
And if you need to for some reason, you can check out my original roundup here.
Oh, please note that I’ll only be focusing on the voting FOMC members. After all, they’re the ones who get to, well, you know, actually vote.
And again, for the newbies out there, the Federal Open Market Committee (FOMC) is composed of the Board of Governors, who always get to vote, and the Reserve Bank Presidents. There are eleven Reserve Bank Presidents, but only four get to vote as an FOMC member on an annual rotating basis.
And 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 hawkish camp (as long as conditions are met)
- U.S. Fed Chair
- Board of Governors
Fed Head Yellen’s latest speech was during her August 26 Jackson Hole statement.
But with regard to monetary policy, Yellen’s most important statement was this (emphasis mine):
“Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
She did give a few caveats, though, saying that monetary policy is data-dependent and “as ever, the economic outlook is uncertain.” As such, “the path of so monetary policy is not on a preset course.”
Oh, also note that Yellen did not explicitly say that a September rate hike is in the cards. Moreover, Yellen’s statement was before the August NFP report when it was revealed that the U.S. economy only generated 151K jobs, missing expectations of a 180K increase. But then again, the reading is above 100K, so it’s still probably still good. After all “To simply provide jobs for those who are newly entering the labor force probably requires under 100,000 jobs per month,” according to Yellen herself in a speech last year.
William C. Dudley
- U.S. Fed Vice Chair
- New York Fed President
- No new updates from the previous roundup
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 like 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.”
- Really Dovish
- Board of Governors
I noted in my previous roundup that Brainard appears to be a very cautious person. Well, that impression only got reinforced when she delivered her September 12 speech. In that speech, Brainard noted that there is a “persistent undershooting of inflation” relative to the Fed’s target and that there is “evidence that inflation expectations may have softened on the downside.”
She then pointed out that Philip’s Curve, which shows the inverse relationship between inflation and the jobless rate, has flattened. Brainard also pointed out that the U.S. has been generating about 180K jobs on average per month, but the jobless rate has been holding steady at around 4.9% instead of dropping lower as expected.
Aside from that, other labor indicators are pointing to persistent slack. The percentage of employees working part-time for economic reasons, for example, “has remained noticeably above its pre-crisis level” Another is that the labor force participation rate “remains about 1-1/2 percentage points below its pre-crisis level, suggesting room for further gains.”
She then proceeded to highlight the downside risks from global events, and that these “should matter to U.S. policymakers because recent experience suggests global financial markets are tightly integrated, such that disturbances emanating from Chinese or euro-area financial markets quickly spill over to U.S. financial markets.”
Given these and other considerations, Brainard concluded that “the case to tighten policy preemptively is less compelling.” She also said that “the costs to the economy of greater-than-expected strength in demand are likely to be lower than the costs of significant unexpected weakness,” which is why she favors a slower and more cautious path to tightening.
- Borderline Hawkish (for now)
- St. Louis Fed President
In the previous write-up, I described James Bullard as a flip-flopper. And as a refresher, Bullard became a dove back in February, then became a strong hawk in late March, before becoming a rather cautious hawk by late May, and then a dove yet again on August 17.
Well, in what appears to be a new record, the notorious flip-flopper flip-flopped yet again just nine days after his last flip-flop. In several August 26 interviews with the Wall Street Journal, Bloomberg TV, and CNBC, Bullard retained his dovish view on the economy when he said that “year over year, the GDP growth rate is very low, below trend really.”
But when he was asked if the Fed could be hiking rates this year, he answered that “we [the Fed] could” before saying that “I’m agnostic on exactly when we do that.” He then added that he personally favors one rate hike within the year and then holding rates steady for the next 2 and 1/2 years.
- Board of Governors
In an interview with CNBC shortly after Yellen delivered her Jackson Hole speech, Fischer was asked if we should be “on the edge of our seat” for a rate hike as soon as September and if the market can expect at least two rate hikes this year. And Fischer answered as follows (emphasis mine):
“I think what the Chair said today was consistent with answering yes to both of your questions, but these are not things we know until we see the data.”
Really hawkish, yeah? Do note, however, that Fischer is saying at the end that the actual path of monetary policy is data-dependent. In addition, do note that Fischer based his answer on Fed Head Yellen’s statement – Fischer didn’t actually reveal his personal views on monetary policy. That’s par for the course, I suppose. After all, the sneaky rascal did the same thing during his August 21 speech, as I discussed in the previous roundup.
Esther L. George
- Rate Hike Now!
- Kansas City Fed President
I don’t think I need to show y’all how Esther L. George talks the talk. After all, she is the only hawk who actually walks the walk, given that she was the only one who dissented during the July FOMC statement, opting for a 25 bps rate hike then and there instead.
Loretta J. Mester
- Cleveland Fed President
On September 1, Mester delivered a speech about philanthropy in Kentucky. The speech itself didn’t really have anything to do with monetary policy, but in the Q&A portion after that, reporters used the opportunity to grill Mester on her monetary policy bias. And she said that (emphasis mine):
“If you have a forecast and inflation is moving up to your target and you’re at full employment, then it seems like a gradual increase from a very low interest rate is pretty compelling to me. Pre-emptiveness is important.”
She didn’t explicitly say if she supports a September rate hike or not, though. But as I highlighted in the previous roundup, Mester clarified in her July 13 speech that she was hawkish but didn’t vote for a rate hike during the June FOMC statement because of risk from global events, particularly Brexit. And by extension, Mester probably refrained from voting for a rate hike in July also because of lingering Brexit concerns. It sure would be interesting if she joins Esther L. George in walking the walk, though.
Jerome H. Powell
- I’m a dove. Deal with it.
- Board of Governors
- No new updates from the previous roundup
Powell beliefs are similar to Mester’s in that his main beef is not with the U.S. economy, but 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” since inflation remains subdued.
- Reborn as a hawk
- Boston Fed President
Rosengren has historically been a dove, as I pointed out in my previous roundup. This is why his turnaround during a September 9 speech is kind of a big deal.
Anyhow, Rosengren now has the same views as Brainard, Mester, and Powell in that Rosengren believes that “Weakness emanating from abroad poses short-term downside risks to the domestic U.S. economy.” However, his new stance seems more confident in that he thinks that “the U.S. economy has been relatively resistant to shocks from abroad of late, as evidenced recently by the aftermath of the Brexit vote.”
He also adopted Mester’s view that “there are also longer-term risks from significantly overshooting the U.S. economy’s growth – given the bluntness of monetary policy tools and the possibility of growing imbalances in some asset classes.”
Rosengren also thinks that a low interest rate environment “increases the chances of driving the core inflation rate closer to the Federal Reserve’s 2 percent target, but it also increases the chances of overheating the economy.” As such, “gradual tightening is likely to be appropriate.”
Like most of the other Fed officials, however, Rosengren avoided saying explicitly that he would support a September rate hike.
Daniel K. Tarullo
- Dovish until data say otherwise
- Board of Governors
Shortly after Rosengren delivered his speech, Tarullo also decided to share his views via an interview with CNBC. And in that interview, he reiterated his dovish views, saying that he belongs in the “show me” camp.
He appears to have a meeting of the minds with dovish Brainard when he pointed out that “the unemployment rate has remained just about stable, while we’ve had about a million jobs above the replacement needs,” pointing out that there’s still some slack in the labor market. Tarullo then reminded his viewers that “Remember our mandate is maximum employment not some constructed view of full employment.”
He also disagreed with Rosengren and Mester when he said that the U.S. is “not running a hot economy.” Tarullo also revealed his very cautious nature when he said that “What is optimal right now is to look to see actual evidence that the inflation rate will continue to go up and be sustained at around the target because we’ve had so many false up and downs in the past.”
So, there are now seven hawks or leaning towards the hawkish camp, of which the only one actually walked the walk. In contrast, there are three doves, of which one is in the wait-and-see camp while the other two have well-entrenched views.
This is a noteworthy switch in Fed bias compared to the previous roundup when there were six doves to the four hawks. However, keep in mind that it doesn’t automatically mean that we’ll be getting a September rate hike just because there are more hawks than doves. After all, most of the hawks didn’t explicitly support a September rate hike.