Upcoming Events
Feb 07 GDPNow Update
Feb 07 Powell Speaks at Economic Club of Washington, D.C.
Feb 07 Barr Speaks at HOPE Economic Mobility Forum
Feb 08 GDPNow Update
Feb 08 Barr Speaks at HOPE Economic Mobility Career Expo
Feb 08 Waller Speaks at Arkansas State University’s Argibusiness Conference
Feb 10 Survey of Professional Forecasters Release
Feb 10 Surveys of Consumers Release
Feb 10 Waller Speaks at Conference on Digital Currency and DeFi
Feb 10 Harker Speaks at Global Interdependence Center’s Conference on Digital Money, Decentralized Finance, and the Puzzle of Crypto
Recent News
Lag length… The FOMC has increased its federal funds rate target by 450 basis points over the last year. Now, Fed officials are wondering how much further to go. As Nick Timiraos explains, it all depends on how long they think it takes monetary policy to work:
If the lags are long, last year’s rate increases are just beginning to work their way through the economy and will strongly curb economic activity in the year ahead. That implies the Fed doesn’t have to raise rates much more or keep them high for very long.
But if the lags are shorter, the previous hikes have largely taken effect already and the central bank could decide it has to raise rates higher or hold them high for longer to achieve the desired effect.
Surprising response… The stock market rallied late on Wednesday. The Russell 3000 Index climbed 1.53% from the start of the post-meeting press conference to market close, despite Fed Chair Jerome Powell’s insistence that rate hikes would be ongoing.
We don’t believe you… In December, the median FOMC member projected the federal funds rate target would exceed 5.0 percent by the end of 2023. On Friday, the CME Group reported markets were pricing in a mere 13.7 percent chance that the federal funds rate will be that high come December. The FOMC will reaffirm or revise its projections in March.
Data dependent… When asked how the FOMC might adjust its federal funds rate projection in March, Powell demurred:
At the March meeting we’re going to update those assessments. We did not update them today. We did, however, continue to say that we believe ongoing rate hikes would be appropriate to attain a sufficiently restrictive stance of policy to bring inflation back down to 2 percent.
We think we’ve covered a lot of ground, and financial conditions have certainly tightened. And I would say we still think there’s work to do there. We haven’t made a decision on exactly where that will be. I think, you know, we’re going to be looking carefully at the incoming data between now and the March meeting and then the May meeting. I don’t feel a lot of certainty about where that will be. It could certainly be higher than we’re writing down right now. If we come to the view that we need to write down—you know, to move rates up beyond what we said in December, we would certainly do that. At the same time, if the data come in in the other direction, then we’ll—you know, we’ll make data-dependent decisions at coming meetings, of course.
So long, supply constraints… The FOMC removed references to the pandemic and the war in Ukraine in its most recent post-meeting statement. It had previously said these factors were contributing to inflation.
Changing of the guard… Regional Reserve Bank Presidents Susan Collins (Boston), Loretta Mester (Cleveland), James Bullard (St. Louis), and Esther George (Kansas City) rolled off as voting members of the FOMC. They were replaced by Patrick Harker (Philadelphia), Austan Goolsbee (Chicago), Neel Kashkari (Minneapolis), and Lorie Logan (Dallas). All regional Reserve Bank presidents may participate in FOMC meeting discussions.
Balance sheet bully… Sen. Rick Scott (R-FL) wants to know why the Fed has not reduced its balance sheet as quickly as planned—and whether it will revise its targets. The Fed’s balance sheet grew from $4.15 trillion in January 2020 to $8.96 trillion in March 2022. It is currently around $8.43 trillion. In a letter sent to Powell last week, Scott asked how big the balance sheet should be.
Employment Situation… The U.S. added 517,000 jobs in January. At 3.4 percent, the unemployment rate is at its lowest since 1953. Labor force participation (62.4 percent) and employment to population (60.2 percent) were essentially unchanged from the prior month.
Help wanted… Job openings increased to 11.0 million in December, with little change in the number of hires (6.2 million) and separations (5.9 million) over the month. The news came as a surprise, given recent reports of mass layoffs.
No wage-price spiral… The Employment Cost Index grew at a slower rate for a third consecutive quarter, coming in at 1.0 percent in Q4-2022. Workers have struggled to keep up with inflation in the post-pandemic economy. Whereas the Personal Consumption Expenditures Price Index has grown 12.7 percent since the beginning of 2020, the ECI has grown just 12.0 percent.
Promotions… Roberto Perli, currently head of global policy research at Piper Sandler, will join the New York Fed as manager of the System Open Market Account. The SOMA holds assets purchased by the Fed through its open market operations. Perli served as a senior staff member at the Board of Governors from 2002 to 2010.
Joshua Gallin, a senior advisor to Powell, has taken over for James Clouse as FOMC secretary. Gallin has worked at the Board since 1998. Clouse continues to serve as deputy director of Monetary Affairs.