Thoughts From The Divide – Expeditiously
“As quickly and effectively as we can”
If “transitory” was the previous buzzword du jour, the new term appears to be “expeditiously”, which Chairman Powell used six times during Wednesday’s post-FOMC presser in the context of both raising rates and bringing down inflation. As to the former, Chair Powell and company voted unanimously to raise the target range for the federal funds rate by 50 basis points, which made headlines for being “the largest move since 2000”. Powell did, however, talk down the chance of larger hikes, saying a “75 basis point increase is not something the committee is actively considering”, thanks in part to the Fed’s expectations that “we’ll start to see inflation, you know, flattening out.” This brings us to the latter “expeditiously”, bringing down inflation. Here, Powell repeated the tried-and-true trope of the FOMC understanding that inflation “imposes significant hardship, especially on those least able to meet the higher costs of essentials”, and took the first part of his speech to “speak directly to the American people” on how “we understand the hardship it is causing”. On a technical side, however, Powell did warn that any immediate easing of inflation isn’t a reason to be hasty, saying that one month “doesn’t tell us much” and noting that despite two months “where core inflation… is a little lower… we’re not really looking at that as a reason to take some comfort”. As an aside, while this week’s ISM Manufacturing Prices Paid saw some relief, dropping from 87.1 to 84.6, ISM Services Prices Paid hit 84.6, “an all-time high”.
Not quite getting the “expeditiously” treatment was the balance sheet roll off. Though announced in conjunction with the hike, the roll off, slated to start at $30bln a month in treasuries and $17.5bln a month in MBS, won’t begin until June 1. When probed on why the FOMC decided to wait to start its roll off, Powell said, “that happened to be the date that we picked… nothing magic about it” and further clarified that, “Sometimes we publish these calendars on the first day of the month and that’s what we’re doing”. (It was in a postscript in a Thoughts From The Divide from last year, but this paper on QE and market valuations might be worth revisiting.)
Following the meeting, former Vice Chairman Clarida added his own “expeditiously”, saying that moving rates higher in such a manner toward the neutral rate would “not be enough this cycle to return inflation… back to the 2% longer-run goal”, but instead, he believes that Fed funds will “ultimately need to be raised well into restrictive territory”.
P.S. Also following the Fed’s hike and presser was the Bank of England’s decision. Once again, the BoE opted to hike in a split decision, with the minority voting for a more aggressive rate move, perhaps focusing on the fact that the bank “now believes it [inflation], will top out just over 10%”.