Fed Commentary
US: The Fed Watcher
2021-03-23T18:18:09

Fed officials will blanket the newswires in the coming days, although we don’t expect a meaningful change in Fed messaging relative to recent communications.  At last count, nine different members of the FOMC are due to deliver speeches (some multiple appearances) between today and Thursday—including the Fed Chair today with Treasury Secretary Yellen on the CARES Act. The Fed Chair continued to make the case for “patience”— reinforcing the dovish message from the FOMC’s updated dot plot (below).  In his testimony, Powell said "We do expect that inflation will move up over the course of this year," but "our best view is that the effect on inflation will be neither particularly large nor persistent.” 

Of course, with so many officials sharing their views over the course of the next few days inevitably there will be some differing opinions on how patient the Fed will ultimately be. However, we suspect all members are in full agreement that they will be reactive and not proactive when they eventually hike rates and will need to see actual evidence and not just forecasts before liftoff begins. In fact, in an interview earlier on Tuesday, Dallas Fed President Kaplan (a non-voting FOMC member this year) noted  that "there were some dots starting increases in 2022, and, you know, I'm one of those dots... I have a forecast for removing accommodation that's more aggressive than the median." President Kaplan also added that he will need to see "actual evidence...outcomes, not just strong forecasts" before tightening policy.

Meanwhile, Fed Gov Brainard also spoke on Tuesday. She did not directly discuss the current economy or monetary policy. Instead, she focused her comments on climate change, and announced that the Fed has created a new committee—the Financial Stability Climate Committee—that is charged with "developing and implementing a program to assess and address climate-related risks to financial stability". 

FOMC Dot Plot: March vs. December

Source: Federal Reserve, NatWest Markets

https://www.agilemarkets.com/api/ds/v1/Resource/1189575

  


NWM Hawk-Dove Map 2021

Source: Federal Reserve, NatWest Markets

 

  

  

Selective Fed Speak on Coronavirus/Economy/Policy

Robert Kaplan: There were some dots starting increases in 2022, and, you know, I'm one of those dots. I have a forecast for removing accommodation that's more aggressive than the median. (March 23, 2021)

Chair Powell (Voter): The recovery has progressed more quickly than generally expected and looks to be strengthening. But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes. (March 22, 2021)

With regard to interest rates, we continue to expect it will be appropriate to maintain the current 0% to .25% until rates are consistent with the maximum employment and is on track to moderately exceed 2% for some time. I would note that a transitory rise in inflation above 2%, as seems likely to occur this year, would not meet this standard...And again, you know, the state of the economy in two or three years is highly uncertain, and I wouldn't want to focus too much on the exact timing of a potential rate increase that far into the future... The strong bulk of the committee is not showing a rate increase during this forecast period.  (March 17, 2021)

Michelle Bowman (Voter): I expect to maintain an accommodative stance of monetary policy until employment and inflation achieve levels consistent with our maximum employment and inflation goals. At this point, the economy is still a long way from those goals. We are making progress, but I think it will take some time for us to get there. (March 22, 2021)  

Thomas Barkin (Voter): We are going to see an extremely strong year and I think that strong year is going to lead to price pressures. I want to emphasize inflation is not a one-year phenomenon it's a multi-year phenomenon...Our guidance suggests we would be raising rates were inflation to spike past our targets.  (March 21, 2021)  

Raphael Bostic (Voter): I think our stance is appropriate that we definitely need to be continuing to provide robust support for the economy. It’s difficult to tease out a real signal of underlying inflation. But we have to always be mindful about what’s happening with the price level. (March 5, 2021)

Loretta Mester: We are still very far from our goals. From my point of view on policy, I think that's going to take sustained accommodation from the Fed for some time. (March 5, 2021)

Neel Kashkari: If we were seeing a real uptick in real yields, that would give me pause. That would give me concern that the amount of accommodation we’re providing the economy is reducing, and that might warrant us considering a policy response. But we’re not seeing much movement in real yields. Most of the movement is in that inflation expectations, or inflation compensation. (March 5 , 2020)  

Charles Evans (Voter): We’ve really been looking for 2021 to be the year where we strongly rebound. That’s certainly what I am looking for. There’s been good, strong support from fiscal authorities. (March 3, 2021) 

Patrick Harker: For me, I’m not looking at a hike any time in 2022. Probably, if there is one, it’s toward the latter end of 2023. I mean, I think we’ve got a ways to go. What we don’t want to see is inflation running out of control. At this point, I don’t see signs of that. We just don’t see signs of inflation running past 2% in a very rapid fashion...There’s a host of tools that we have. All of those are under discussion, and I wouldn’t take anything off the table, but at this point, I am firmly committed to holding where we are. (March 3, 2021)

Lael Brainard (Voter): Transitory inflation pressures are possible if there is a surge in demand that outstrips supply in certain sectors when the economy opens up fully. A surge in demand and any inflation bottlenecks would likely be transitory, as fiscal tailwinds to growth early this year are likely to transition to headwinds sometime thereafter...We have pledged to hold the policy rate in its current range until not only has inflation risen to 2% but it is also on track to moderately exceed 2% for some time...If, in the future, inflation rises immoderately or persistently above target, and there is evidence that longer-term inflation expectations are moving above our longer-run goal, I would not hesitate to act and believe we have the tools to carefully guide inflation down to target. (March 2, 2021)

Mary Daly (Voter): As for the likelihood of runaway inflation, I don’t see this risk as imminent, and neither do market participant. There is still some level of unemployment below which wage and price inflation will pick up, but it’s hard to know, a priori, where it is. (March 2, 2021) 

John Williams (Voter):  With our economy and the global economy still far below full strength, I expect underlying inflationary pressures to remain subdued for some time. As the economy fully heals and reaches maximum employment over the next few years, I expect inflation will sustainably move to levels consistent with our 2% longer-run goal…I expect inflation-adjusted, or real, GDP to rebound sharply this year. Indeed, with strong federal fiscal support and continued progress on vaccination, GDP growth this year could be the strongest we’ve seen in decades.  (February 25, 2021)

James Bullard: The committee has said we are going to wait for further progress on our goals. I gave a rosy outlook today but it’s only an outlook. I would definitely want to see whether this materializes or not before getting into any adjustments to policy. (February 25, 2021)

Esther George: It is too early to discuss pulling back on accommodation given continue elevated unemployment, below-target inflation, and the uncertainties surrounding the outlook. Further monetary stimulus seems unlikely to help close gaps in the most virus-afflicted sectors while simultaneously running the risk of exacerbating imbalances and shortages in interest-sensitive sectors. (February 25, 2021)

Vice-Chair Clarida (Voter):  A low unemployment rate, in and of itself, will not be sufficient to trigger a tightening of monetary policy absent any evidence from other indicators that inflation is at risk of moving… Prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished. While our interest rate and balance sheet tools are providing powerful support to the economy and will continue to do so as the recovery progresses, it will take some time for economic activity and employment to return to levels that prevailed at the business cycle peak reached last February.  (February 24, 2021)

Eric Rosengren: I would be very surprised if we see a sustained inflation rate of 2% in the next year or two. We want the broad-based inflation level to be at 2%. I don’t think we are going to see it this year. I don’t think we are going to see it next year. (February 17, 2021)

Randal Quarles (Voter): I am optimistic that the recovery from the COVID event will continue to be robust. While we’re doing better than expected, we still have a ways to go. The labor market remains deeply depressed, and employment is far short of the Federal Reserve’s maximum employment goal. Inflation is well below our 2% longer-run goal, and some measures of inflation expectations have ticked down. (October 14, 2020)

Source: Various News Sources

  


Fed Speaker Calendar: March 22-28, 2021

Member

Time (EDT)

Voter status

Topic / Event

Week of March 22 to March 28


Tuesday 23 March




St. Louis Pres. Bullard

9:00

2022 Voter

Discussion on Monetary Policy and the Economy at a Virtual Event Hosted by the London School of Economics

Atlanta Pres. Bostic

10:10

2021 Voter

Podcast on Economic Inclusivity

Richmond Pres. Barkin

11:00

2021 Voter

Virtual Discussion Hosted  by the Greenville County (S.C.) United Way

Fed Chairman Powell

12:00

Voter

Discussion on the CARES Act with Treasury Secretary Janet Yellen Before the House Financial Services Committee

Governor Brainard

13:30

Voter

Speech on Climate Change

New York Pres. Williams

14:45

2021 Voter

Virtual Panel Discussion on the Central New York Economy

Governor Brainard

15:45

Voter

Discussion on the Economic Outlook at the Annual NABE Policy Conference

Wednesday 24 March

 

 


Richmond Pres. Barkin

8:50

2021 Voter

Virtual Discussion Hosted by the Charlotte Regional Business Alliance

Fed Chairman Powell

10:00

Voter

Discussion on the CARES Act with Treasury Secretary Janet Yellen Before the Senate Banking Committee

New York Pres. Williams

13:35

2021 Voter

Virtual Moderated Discussion Hosted by Syracuse University and Onondaga Community College

San Francisco Pres. Daly

15:00

2021 Voter

Discussion on Equitable Growth at a Virtual Economic Policy Forum

Chicago Pres. Evans

19:00

2021 Voter

Discussion on the Economic Outlook in a Virtual Moderated Q&A Hosted by the Japan America Society of Chicago

Thursday 25 March

 

 

 

New York Pres. Williams

5:30

2021 Voter

Remarks on Central Bank Innovation at the BIS Innovation Summit

Governor Clarida

10:10

Voter

Speech on the Economic and Monetary Policy Outlook to a Virtual Event Hosted by the Institute of International Finance

Atlanta Pres. Bostic

12:00

2021 Voter

Speech on Measuring the Economy in the time of Covid to the Economic Club of New York

Chicago Pres. Evans

13:00

2021 Voter

Discussion on the Economic Outlook in a Virtual Women in Housing and Finance Public Policy Luncheon

San Francisco Pres. Daly

19:00

2021 Voter

Discussion on Monetary Policy in the Covid Era

Next FOMC Meeting:  Tues/Wed April 27-28, 2021

Wednesday 28 April

14:00

 

FOMC Rate Decision

Fed Chairman Powell

14:30

Voter

Press Conference Following FOMC Rate Decision

  

Source: NatWest Markets, Bloomberg


Thanks to Deepika Dayal and Garima Ahuja for their contribution to this publication.





  


Please click here to find all of NatWest Markets’ Strategy and Sales commentary/ideas.

You can also find out more about our electronic offering and credentials for Rates here and for FX here.



Invitation to consider a derivatives transaction

This communication is prepared by the sales and trading desk or desk strategists and is marketing material, desk strategy and/or trader commentary. It does not constitute research. This material constitutes an invitation to consider entering into a derivatives transaction under U.S. CFTC Regulations 1.71 and 23.605, where applicable, but is not a binding offer to buy/sell any financial instrument. The views of the author may differ from others at NatWest Markets Plc, NatWest Markets N.V. and/or NatWest Markets Securities Inc. (collectively “NatWest Markets”).





Note that the text above is subject to the disclaimer(s) accessible if you Click Here
Authors
Image
Kevin Cummins
Chief US Economist
Stamford
+1 2038972818

Contributors
{{contributor-span-repeater}}

If you wish to discuss the content of this article further, please contact your usual sales person. Reminder, clients of Natwest Markets NV should reach out to their relevant NV sales person.


"Related Articles" Coming Up Next..
  • 1. BoE Inflation Report - Reinforcing Policy Neutrality
  • 2. BoE Inflation Report - Reinforcing Policy Neutrality
  • 3. BoE Inflation Report - Reinforcing Policy Neutrality
  • 4. BoE Inflation Report - Reinforcing Policy Neutrality