EC Central Bank Watch: Fed Speeches, Interest Rate Expectations Update - Tuesday, March 30


In this edition of Central Bank Watch, we’ll review the speeches made over the past week by various Federal Reserve policymakers, including the Fed Chair himself. Now in an extended period between meetings – the next Fed rate decision is due out on April 28, then not again until June 16 – we are likely entering a several-month stretch whereby Fed policymakers are more present in the day-to-day machinations of financial markets.


Following the Fed’s March 17 meeting, US Treasury yields have calmed down – even if they remain significantly elevated relative to the start of this year. But the drumbeat has continued among all the policymakers heard over the past week: rising US Treasury yields are a sign of the market’s confidence in the recovery, not a sign that inflation will run higher and hotter than anticipated. In fact, it may be the Fed’s resolute insistence on not bucking to bond vigilantes that ultimately caps bond market volatility.

Thus far, no comments have been made about whether or not the $20 billion+ implosion of Archegos Capital Management will impact the Fed’s decision to end the SLR; earlier on Tuesday, the NY Fed accepted $107.725 billion in its reverse repo operation across 35 bidders, up from $40.354 billion across 22 bidders.

March 23 – Powell (Fed Chair) says that "we have been living in a world of strong disinflationary pressures -- around the world really -- for a quarter of a century," so "we don’t think a one-time surge in spending leading to temporary price increases would disrupt that."

Brainard (Fed governor) says that she sees “a patient approach based on outcomes rather than a preemptive approach based on the outlook” as being more effective for achieving Fed’s goals.

Kaplan (Dallas Fed president) says "there were some dots starting increases in 2022. And, you know, I’m one of those dots. Yes, absolutely."

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