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

Waller (Fed governor) pushes back against taper tantrum fears developing around recent inflation data, saying “we will not overreact to temporary overshoots of inflation.”

May 14 – Mester (Cleveland president) says “my baseline scenario for inflation is we’re going to have higher inflation this year, above 2%, but then as some of those constraints on supply ease I think we’re going to see inflation go back down and we’ll have to monitor that as we go forward.” Furthermore, striking a dovish tone, “this is not the time to be adjusting anything on policy. It really is a time for watchful waiting, seeing how the recovery evolves.”

May 17 – Clarida comments that “the way in which we bring supply and demand into balance in the labor market, especially in the service sector, may take some time and may produce some upward pressure on prices as workers return to employment.” In other words, higher wages are welcomed by the Fed.

May 19 – Bullard preaches patience, saying he’s against “trying to do anything to change policy when we’re still in the pandemic,” specifically looking for more “evidence” in the US economy prior to “tapering purchases.”

Quarles (Fed Vice Chair) downplays fears that inflation is running away from the Fed, saying “the Federal Reserve has the tools to address inflationary concerns should they prove to be more durable and higher than we currently analyze them to be.”

Bostic sets out a milestone in the US labor market that’s necessary to be achieved before “advocating for [the FOMC] moving policy,” noting that the US economy is “still 8 million jobs short” of its pre-pandemic workforce.

April FOMC meeting minutes summarize that “a number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” ‘Adjusting the pace of asset purchases’ is another way of saying ‘tapering. However, this is a veryconditional statement, predicated on the US economy continuing to march towards the Fed's goals at a rapid pace, which the Fed says isn't now. Even then, tapering itself won’t begin; only the discussion about when it’s appropriate to taper will.

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