Fed Speak Returns – Does Powell Speak for Everyone on the Committee?
Fed speak starts up again today as we will get an update from members of the committee on their thoughts about current monetary policy amidst the recent data for April post their meeting earlier this week. We will learn where Powell stands vs. the rest of the committee and whether or not he speaks for everyone. It was clear to me post the March meeting that he didn’t speak for the hawks and I suspect we are going to learn that again in coming few weeks of Fed speak as hawks push back once again against Powell’s dovish performance.
After the monthly payrolls report come out at 830am and ISM Services at 10am, we will hear from the Fed’s Goolsbee at 1030am and then he and John Williams speak again this evening. These guys are both doves but important voices.
Williams is the r* guy who I think has used his framework to misguide the Fed on the idea of real rate normalization cuts. By not looking more holistically at financial conditions loosening and the impact this has had on the economy, and instead myopically thinking that elevated real rates suggests monetary policy is restrictive, the Fed has made the last mile achievement of 2% inflation considerably more difficult.
As for Goolsbee, his voice all of a sudden is about to become more important again because he is going to become a voting member starting at the July meeting after Fed’s Mester steps down post the June meeting until the Cleveland Fed finds a replacement. Goolsbee has been the one talking about the “golden path” of immaculate disinflation being achieved and is generally considered one of the most dovish members of the Fed.
Given his background, he is also likely very much in the Team Re-elect Biden camp. It will be interesting to hear from him on the data that comes out this morning and how that fits into his calculus for monetary policy for the rest of the year. If we get strong data on wages, which suggests that inflation will continue to struggle to return to 2% in a timely manner, why is the Fed still convinced the next move is an interest rate cut rather than a hike?
Chair Powell went out of his way to say in his press conference on Wednesday that an interest rate hike is still not likely to come, confirming the asymmetrical nature of monetary policy outlook which I have argued is making it more difficult to achieve the return of inflation to 2%. The immediate risk on / loosening financial conditions behavior of markets post the press conference confirms that suspicion.
The market will want to hear whether or not a rate hike was discussed at the meeting and what conditions they would be necessary to see in order to make a hike a more likely outcome. Recall that back in September, a substantial majority of Fed members were still looking for another rate hike in 2023 which they failed to deliver. Conditions in the economy are more supportive of a rate hike today than they were back in the fall of 2023 but Powell seems to keep pushing back on this.
Goolsbee will be able to help fill in the pieces on how the meeting went and his voice is becoming more important again as he becomes a voter in July.
