Fed Chair Powell says we know this is a time for Fed to be tightly focused on getting inflation down; we have tools and resolve to get inflation back down; Broad support on FOMC for having on table for 50bps at next two meetings

POLICY/RATES

• No one should doubt Fed's resolve.


• Very difficult to think about giving forward guidance.


• By standards of central banks practice, we are moving as fast as we have in several decades.


• Would have been better to raise rates sooner with hindsight.


• Pathway for us to use tools to moderate demand.


• Number of plausible paths to a soft-ish landing.


• Reiterates ongoing rate hikes are appropiate.


• Broad support on FOMC for having on table for 50bps at next two meetings.


• That is short of a prediction though.


• Raising rates expeditiously to more normal level and will probably reach that in Q4 this year.


• That is not a stopping point though.


• We do not know where neutral is or where tight is.


• Will be looking meeting by meeting at financial conditions and economic health.


• If we have to move post neutral, we will not hesitate.


• Will continue raising rates until we see inflation coming down.


• Will go until we are at a place where financial conditions are appropriate, inflation is coming down.


• Need to keep pushing ahead with raising rates.


• Markets are pricing in a series of rate hikes.


• Like to work through expectations.


• Good to see markets reacting to what we are saying.


• Financial conditions overall have tightened significantly.

INFLATION

• Need to see inflation coming down in a convincing way (echoing Mester's comments).


• Need to see clear and convincing evidence inflation is coming down; if we do can slow pace of rate hikes.


• If we do not see that, will have to move more aggressively.


• Think there could be some economic pain involved to get inflation down.


• Not a time for nuanced readings of inflation and need to see it coming down in a meaningful way.


• Until we get as far as we need to get with inflation, we need to keep going.

ECONOMY

• Need to see growth moving down from high levels.


• Growth this year is still at very healthy levels.


• Consumer balance sheets are healthy.


• Well positioned to withstand tightly policy.


• You cannot get the type of inflation we have without supply bottlenecks.


• Markets are orderly and functioning.

LABOUR MARKET

• Think we can maintain low employment, when getting inflation down.


• Labour market is extremely strong.


• There is more demand for workers than people to work by substantial margin.


• Means wages moving up at a pace not consistent with 2% inflation.


• Still strong labour market if unemployment rate raises 'a few ticks'.


• Our job is to handicap the odds.


• May well be that natural rate of unemployment rate has risen.


• Right now it feels like the natural rate is well above 3.6%.

UKRAINE WAR/CHINA LOCKDOWNS

• War is pushing up commodity prices and we do not know how long that will last now.


• Looks like Ukraine war effects may be longer lasting than expected.


• Same for China lockdown impacts on supply chains.

17 May 2022 - 19:05- Fixed IncomeData- Source: Newswires