Central Bank Watch: Fed Speeches, FOMC Minutes, Interest Rate Expectations Update

INTER-MEETING CHATTER

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. In the extended period between the April 28 and June 16 meetings, market participants have been offered numerous chances to listen to a litany of Fed policymakers discuss the state of the US economy. More speakers are due ahead in the coming days, so the congo line of ‘keep calm and carry on’ messaging will continue.

FOMC DANCES AROUND THE ‘T WORD’

Federal Reserve policymakers are balancing a generally improved US economy against the seemingly fragile state of the recovery (from their point of view). Even though higher price pressures have been realized, Fed policymakers have been resolute in their intent on keeping policy on hold at present time. Even statements that seemingly appear hawkish on the surface are merely ‘sheep dressed in wolf’s clothing’ (a dove with hawk’s feathers?).

May 12 – Clarida (Fed Vice Chair) says that the sharp rise in the April US inflation rate came as a surprise, but that he expects “inflation to return to – or perhaps run somewhat above – our +2% longer-run goal in 2022 and 2023.”

Bostic (Atlanta president) notes that a “fair amount of volatility in inflation” data is expected as the economy reopens, while also suggesting that he’s “not seeing excessive froth in financial markets.”

May 13 – Barkin (Richmond president) downplays inflation fears, referencing a discussion with businesses in his Fed district, saying that he doesn’t “hear their medium- to long-term expectations of inflation changing.” In what may be perceived as a hawkish comment, he also commented that he was “hopeful we are on the brink of completing the recovery.”

Bulard (St. Louis president) says that inflation could rise above the Fed’s +2% target, which “would be a welcome development for FOMC, as inflation has generally been below target for many years.”

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