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A couple of days ago we discussed how June’s FOMC meeting minutes weighed on the dollar because Fed members aren’t as unified in their plans as market players earlier believed.

Specifically, we have yet to see if head honcho Janet Yellen and her team have enough conviction to raise interest rates at least once more this year. And then there’s the teeny tiny issue of WHEN they will actually unwind their bloated balance sheet, a move that will affect markets across the board.

Has this week’s round of FOMC member speeches shed light on key issues? Let’s break down what several members had to say.

But before you proceed, make sure you read the 2017 FOMC Voting Members Cheat Sheet to get a clearer picture of whose opinions matter and what their general biases were at the start of the year!

Done with your refresher? Let’s move on to the speeches:

Lael Brainard: “Not much more work to do” on interest rates

  • Member, FOMC Board of Governors (voting member)
  • Usually dovish
  • Tends to have similar opinions to bestie Yellen

Brainard (no, not the Westworld character) set the tone early this week when she voiced her support for balance sheet normalization while taking a careful approach to more rate hikes. In a speech in New York, the Fed member noted that

“If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.”

However, she also warned that the “neutral level” (read: neither stimulating nor restraining the economy) of the Fed’s interest rates will likely “remain close to zero in real terms over the medium term” so “we would not have much more additional work to do on moving to a neutral stance.

Brainard wants to watch inflation closely and to “move cautiously” on further rate hikes now that inflation has lost its momentum.

On implementing rate hikes and normalization at the same time, Brainard warned that though they have similar domestic effects, its cross-border spillovers are “not equivalent” so “the sequencing…could have important implications.”

Overall, Brainard’s comments hint that she might support the start of normalization as early as September, but would likely balk at further raising rates this year.

Neel Kashkari: Wages, wages, wages

  • President, Minneapolis Fed (voting member)
  • Voted against rate the March and June rate hikes

At a separate event last Tuesday, Kashkari repeated his non-concern about the U.S. economy overheating. Apparently, he doesn’t think inflation will suddenly shoot higher until wages start to improve.

Recall that the Minneapolis Fed President has dissented both times the FOMC raised its rates this year. In an article published last month, he explained that

“I look at wages and costs of labor as potentially early warning signs of inflation around the corner. If employers have to pay more to retain or hire workers, eventually they will have to pass those costs on to their customers. Ultimately, those costs must show up as inflation.”

Kashkari didn’t talk about normalization, but he did write in June that “I have been calling for the FOMC to put out detailed plans for when and how we will begin to normalize our balance sheet,” adding that “I would have liked us to go further and also announced a start date for the balance sheet roll-off later this year.

Esther George: Shrink balance sheet “sooner than later”

  • President, Kansas Fed (non-voting member)
  • Known critic of the Fed’s bond-buying program

In a forum in Denver, George warned that “Holding long-term rates below the level that they might otherwise move to naturally, amidst improving economic fundamentals, risks creating financial imbalances.

George reminded that longer-term yields remain little changed even though the Fed has raised its rates four times since December 2015 and admitted that it’s one reason why she favors “shrinking the balance sheet sooner rather than later.

Robert Kaplan: Pics or it (inflation) didn’t happen

  • President, Philadelphia Fed (voting member)
  • Turning dovish?

In an essay released by the Fed, Kaplan echoed Brainard’s view on the neutral rate by saying that it will likely be “much lower than we are historically accustomed.

He added that he supports “gradual and patient” removal of accommodation as he would “like to see some greater evidence that we are making progress toward meeting our 2% inflation objective in the medium term.

On normalization, Kaplan shared that he wants to “begin the process of balance-sheet reduction sometime later this year.

Loretta Mester: Everything is on track

  • President, Cleaveland Fed (non-voting member)
  • Called for 4 rate hikes in 2016

In an interview with Wall Street Journal, Mester shared that the labor market and the economy are on track for the gradual pace of Fed rate hikes.

She also pulled a BOC by pushing for a “preemptive monetary policy.” That is, she believes that central banks need to move before they hit their goals (like 2% inflation) because “monetary policy takes a while to work.”

Mester is also all thumbs up on the Fed’s decisions and projections, sharing that “inflation moving back to 2% is the right forecast” and “the median policy path in the Summary of Economic Projections is about right” while revealing that “the median path is pretty much where I am…

Specifically, she shared that the Fed’s withdrawal of accommodation

“…takes into account some of the things we’re talking about, some of the uncertainties around where is the natural rate of unemployment, some of the fact that we haven’t seen inflation accelerate…we’re still below our goal. So that prudent path, I think, balances some of these tradeoffs, right? And it also takes into account that we’ve been at very low interest rates for a very long time.”

On normalization, Mester thinks “there isn’t any reason to not start early” since it’s “going to take several years.” She’s currently “comfortable with doing it sometime this year…as long as everyone understands the parameters of our communication.

Patrick Harker: Not so sure about inflation now

  • President, Philadelphia Fed (voting member)
  • Usually hawkish

Back in late June Harker shared that “I still see another rate hike as appropriate for 2017, having already implemented two this year” because the U.S. economy’s strength still has him supporting “the continued gradual removal of accommodation.”

He also shrugged off weak inflation, saying that “It’s a mistake to get caught up in a single decimal point, report, or even a quarter’s worth of data.

But that before the latest PCE report – the Fed’s preferred inflation gauge – reflected a slowdown in consumer prices.

The voting member still thinks the recent slowdown in inflation “could be transitory” but has shared that he’s “in a wait-and-see mode now…let’s just be pragmatic about it.” He even added that “it would give me a little pause in terms of the policy path” if inflation isn’t moving toward the Fed’s 2% target.

Much like his colleagues, though, he’s game for reducing their balance sheet. While he “fully expects” to start this year even though the exact timing hasn’t been decided yet.

Janet Yellen: Clear bias? How about NO.

  • Fed top boss (so yeah, voting member)
  • Usually dovish

What’s an FOMC week without the Fed head honcho herself? In her much-awaited, semi-annual testimony, Yellen did her best to balance out her hawkish remarks with dovish ones.

For starters, Yellen shared that the economy’s current trajectory will “warrant gradual increases” in interest rates over time, but admitted that

“Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.”

Yellen also maintained her view that “recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices” but shared that since “inflation continues to run below our 2% objective and has declined recently, the Committee will be monitoring inflation developments closely in the months ahead.

The Fed top boss didn’t add anything new regarding the Fed’s normalization plans, sharing only that “provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year.

Yellen also pressed that “we do not intend to use the balance sheet as an active tool for monetary policy in normal times” but warned that “the Committee would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction in the federal funds rate.

Market reaction

Hours of answering questions led market players to take Yellen’s statements as DOVISH. After all, she did say that there will be “gradual rate hikes” over “the next few years” but that rates “would not have to rise all much further” to reach neutral status.

In short, the Fed doesn’t seem to be in any hurry to raise rates.

The unwinding of balance sheet also doesn’t seem to pose threats to the Fed’s slow and steady approach even though most of them are in favor of starting the program some time this year. Heck, Yellen even said that she doesn’t expect the balance sheet to return to “normal levels” until 2022!

The unexpectedly dovish stance – made more pronounced by the hawkish speeches that preceded her testimony – weighed on the dollar and bond yields but pushed equity prices higher across the board.