The Daily Update: Fed Speakers

Yesterday we had a plethora of Fed speakers giving their thoughts after last week’s FOMC meeting where members signalled that they were nearly ready to start tapering, with the joint statement making clear that if ‘progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted’.

Fed President Williams noted, ‘There is still a long way to go before reaching maximum employment, and over time it should become clearer whether we have reached 2% inflation on a sustained basis’. He also emphasized that a full recovery means a recovery in employment, not just a lower unemployment rate: ‘The participation cycle lags behind the unemployment cycle, which is an important feature to keep in mind in assessing the state of the labour market’.

Fed Vice Chair Brainard also sounded somewhat less anxious to start the taper than other members, however did state that she hoped the labour market will soon meet the mark to begin tapering. She added that the Fed must remain faithful to its new policy framework and expects inflation to decelerate but is watching risks.

Chicago Fed President Evans brought forward his preference for a rate lift off to 2023 from 2024, calling for a gradual tightening from there if inflation looks set to hold around 2%. ‘The economy will be on a stronger footing and hopefully we'll be looking at an environment where we can be looking to remove’ some rate stimulus ', he said, adding the key is making sure the public buys into the Fed's longer-term inflation goals. ‘In that eventuality, raising rates in late 2023 is appropriate. And it's a very gradual increase’. Tapering asset purchases can likely go ahead as long as incoming job reports ‘continue to be in line with good momentum’ to establish a ‘vibrant labour market’ next year, Evans said. He also said officials never intended to keep up QE until maximum employment was reached, he said.

Also, it was announced that both Dallas Fed President Kaplan and Boston Fed President Rosengren would retire. Kaplan in early October and Rosengren at the end of this month. The announcements come at a time when they were both under scrutiny for personal account trades. Both are not voting members of the Committee this year, (Rosengren was due to be a voter on the FOMC in 2022) and both have been amongst the more hawkish of members of the FOMC. So, we will have two less hawks in 2022 pending possible replacements.