To The Moon

Following the Federal Reserve’s super-sized interest rate hike and another hot read on inflation, a slew of Fed speak this week indicated that central bank officials are unified in the task of cooling inflation — even in the face of global market turmoil.

Across statements, the message was clear: The Fed plans to continue raising rates higher and then hold them there is “clear and convincing” evidence that inflation is cooling. And while recession risk has risen, it’s not the base case expectation.

Fed Governor Lael Brainard

"Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target."

At a research conference in New York on Friday, Fed Governor Lael Brainard underscored that it will take time for the full effect of higher interest rates to work through different sectors and to bring inflation down, adding that the Fed is committed to avoiding pulling back prematurely. Brainard noted that the real yield curve — yields on Treasuries adjusted for inflation — is now in solidly positive territory except for the shortest maturities and with more rate hikes she expects short-term yields to move into positive territory as well.

San Francisco Fed President Mary Daly

“I’m completely resolute to bring inflation down. We bring the rate up and then we hold it. So we're talking about restrictive policy for awhile until we see inflation go back to our 2% goal.”

In the face of a spike in yields on Treasuries in response to Fed policy changes, and given that monetary policy operates with a lag, San Francisco Fed President Mary Daly told reporters on Thursday night that she’s comfortable with the Fed’s projected path for interest rate increases for ending the year around 4%-4.3% on the Fed Funds Rate and 4.5%-5% for 2023. Daly indicated that her expectation for where rates could peak around 4.5-5%, compared with the median Fed official expectation for 4.6%, are a bit higher.

Richmond Fed President Tom Barkin

“Our rate and balance sheet moves will take time to bring inflation dow. But the Fed will persist until they do.”

Richmond Fed President Barkin said Friday that while he expects inflation will come down, he doesn’t expect its drop to be immediate or predictable, noting that a key lesson from the 1970s is to not declare victory prematurely.

Barkin noted that when he speaks to businesses, they tell him that they still view their ability to pass on prices to customers as temporary and that more consumers are trading down or doing without.

Chicago Fed President Charles Evans

"We’re looking at something like another 100 to 125 basis points of rate increases this calendar year."

Chicago Fed President Charles Evans said that the Fed needs to raise interest rates by at least another percentage point this year — a more aggressive stance than previously stated. Evans also said that he doesn’t expect "recession-like" jobless numbers when it comes to the unemployment rate, even as the Fed sees the unemployment rate rising to 4.4% next year — a jump from current levels that some economists say could usher in a recession.

Cleveland Fed President Loretta Mester

"Monetary policy will need to be in a restrictive stance, with real interest rates moving into positive territory and remaining there for some time."

Cleveland Fed President Loretta Mester said the Federal Reserve should raise rates higher and keep policy restrictive for some time since inflation is "unacceptably high," adding that real rates (interest rates adjusted for inflation) are still low and not in restrictive territory yet. She does not see a case for slowing down on rate rises right now, adding that she thinks that the Fed will have to raise rates higher than the level of 4.6% officials have projected on the fed funds rate next year. Mester also underscored it’s better that the Fed err on the side of doing too much rather than too little even if there is an error to be made.

Boston Fed President Susan Collins

"Returning inflation to target will require further tightening of monetary policy, as signaled in the recent FOMC projections. It will be important to see clear and convincing signs that inflation is falling, and I will continue to assess the range of incoming data."

Susan Collins, the new president of the Federal Reserve Bank of Boston, in her first public remarks since entering the role, said that she is committed to bringing inflation down to 2% even if it means the economy slows, adding that she supported further interest-rate increases as projected by Federal Reserve officials last week in the so-called dot plot.

St Louis Fed President James Bullard

“We always watch global market developments, but we’re focused on U.S. markets and fundamentals and think we’re determined to get to right level on policy rate to put downward pressure on inflation. So other central banks will have to react to our intentions.”

Bullard told reporters that he doesn’t see the UK bond market’s situation impacting U.S. inflation or real growth developments, pointing to an incoming new government in the UK and policy changes that are impacting British bonds and financial markets pricing in global bond market volatility.

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