Rate Cuts & Monetary Policy
-
Can’t make a projection now, have to wait until June.
-
Will have to see how things play out.
-
Not at all clear what appropriate monetary policy response would be.
-
Time to wait before adjusting policy.
-
There are cases in which rate cuts would be appropriate this year, and also cases where rate cuts would not be appropriate.
-
I can’t confidently say we know the appropriate rate path.
-
President’s calls for rate cuts don’t affect our job at all.
-
Trump calling for rate cuts doesn’t affect Fed’s job at all.
-
Until they know more, they can wait and see; everyone on committee supported waiting.
Tariffs & Trade Uncertainty
-
Fed does not yet see big economic effects in the data yet from tariffs; people are worried but the shock has not hit yet.
-
A great deal of uncertainty about tariffs.
-
We do not know yet as there is so much uncertainty over tariffs.
-
If large increases in tariffs as announced are sustained, will see higher inflation, lower employment.
-
Avoiding persistent inflation will depend on size, timing of tariffs, and inflation expectations.
-
If nothing happens to alleviate those concerns, would expect that to show up in hard data in weeks and months.
-
Watching extremely carefully, does not see much evidence in actual data of slowdown in the economy.
-
Says they are now in a new phase where administration is beginning trade talks; has potential to change picture materially or not.
-
Big spike in imports to beat tariffs should reverse in Q2; likely net exports to have large positive contribution to GDP.
-
Final sales to private domestic buyers were likely flattered by a bit of front running.
-
Supply Chains
-
Fed does not have tools to address supply chain issues, can be more or less supportive of demand; that is an inefficient way to address supply chain issues.
Consumer Sentiment & Soft Data
-
Not dismissing soft data, the link between consumer sentiment and demand in recent years was weak; this is an outsized change in sentiment through.
Inflation & Price Stability
-
Have inflation above target, with expectation for upward pressure.
-
Last fall, what Fed did, if anything, was a little late, not pre-emptive.
-
Without price stability cannot achieve strong labor conditions.
-
Aim to keep inflation expectations anchored.
-
Underlying inflation picture is good, now running a bit above 2% with decent readings in housing and non-housing services.
Employment & Dual Mandate
-
If we see higher inflation, higher unemployment, Fed will not see further progress toward goals next year.
-
Haven’t faced question of two goals in tension in a long time, have to keep it in their thinking for now.
-
If dual mandate goals are in tension, consider distance from goal, time to close gaps.
Labor Market & Data Dependency
-
Will use a combination of forecasts and data.
-
It is too early to know.
-
This policy is in a good place until they get more data to determine which way to go.
-
Need to see more data.
-
Right thing to do is await further clarity.
-
No hurry, can be patient.
-
Let things evolve and become clearer.
Financial Conditions & Past Policy
-
We didn’t want sharp tightening of financial conditions when economy was vulnerable.
-
QE wasn’t beyond the confines of our mandate.
-
Could have explained it better.
-
My gut tells me that uncertainty is extremely elevated.
-
Downside risks have increased.
-
Risks of higher unemployment and higher inflation have risen, but not yet in the data.
General Economic Outlook
-
Policy is moderately restrictive.
-
Economy is resilient, in good shape.
-
Policy is in a very good place.
-
Based on survey data, businesses and households are very broadly concerned and postponing decisions.
This article was written by Greg Michalowski at www.forexlive.com.