Fed Speak Primer: Hammack, Musalem, Bowman and Barkin scheduled

Fed Speak Primer

SCHEDULE (BST / EDT)

• 14:00 / 09:00: Fed's Hammack (2024 voter, Neutral) to speak at the 2024 Minorities in Banking Forum; Text: no, Q&A: no.


• 15:05 / 10:05: Fed's Musalem (2025 Voter, Neutral) to speak on "Where Research and Policy Meet". Text: yes. Q&A: no.


• 16:00 / 11:00: Fed's Bowman (Voter, Hawk) to speak on "Where Research and Policy Meet". Text: yes. Q&A: no.


• 17:15 / 12:15: Fed's Barkin (2024 Voter, Neutral) to speak on the economic outlook. Text: yes. Q&A: yes.

PRIMER:

On Monday, Fed Chair Powell revealed that Fed is not in a rush to cut rates quickly, adding that providing the economy evolves as expected, there would be 50bps of easing through year-end, by cutting 25bps in November (7th) and 25bps in December (18th), an explicit push back against the need for another 50bps "jumbo" rate cut. Of course, if the labour market were to deteriorate by more than the Fed expects, they could still go ahead with such a move. The Fed will have more data to hand on Friday, after the release of the September NFP report, but there is still the October NFP report due before the November FOMC to help gauge the state of the labour market, which has been weakening recently. Others on the Fed, like Bostic, suggested that if employment growth slows much below 100k jobs, it would warrant closer questioning of what is happening. It is worth noting that with recent geopolitical escalations, it is something the Fed will be watching, particularly regarding implications for inflation if energy prices surge. 

We have not heard from Hammack, the Cleveland Fed President who replaced Mester. Although the topic of her speech does not appear to focus on monetary policy, it is not clear if she will get any remarks related to policy or the economic outlook. If she does, it will be interesting to see if she follows in Mester's hawkish footsteps. 

Musalem recently gave an interview to the FT, where the 2025 voter sounded hawkish. The St Louis Fed President said the Fed should lower rates gradually, warning the US economy could react "very vigorously" to looser financial conditions, stoking demand and prolonging the Fed's fight against inflation. We will be looking further to Musalem's upcoming remarks to gauge his appetite for easing looking ahead. Musalem had suggested he was in agreement with September's 50bp cut, noting it was not a catch up cut and that inflation had fallen far faster than expected.

We have heard from Bowman several times since the September FOMC, where she usually releases near identical remarks to her speech on September 24th. Bowman was the sole dissenter at the meeting, voting for a 25bp rate cut as she feared a 50bp cut would send an unwanted signal the Fed's fight against inflation is over. 

Barkin has not spoken since the September FOMC where he voted for a 50bps rate cut, so we will also be looking to his speech to see his reasons behind voting for 50bps, as well as his views on the outlook for policy and the economy. 

RECENT COMMENTARY

HAMMACK: No recent pertinent comments.

MUSALEM (Post-Fed): In an FT interview, said the Fed should lower interest rates 'gradually'. He added the US economy could react "very vigorously" to looser financial conditions, stoking demand, and prolonging the Fed's mission to beat inflation back to 2%. The 2025 voter added, "For me, it's about easing off the brake at this stage. It's about making policy gradually less restrictive". On the labour market, said mass layoffs did not appear "imminent". Looking ahead, Musalem added he is “attuned to the fact that the economy could weaken more than I currently expect [and] the labour market could weaken more than I currently expect", and “If that were the case, then a faster pace of rate reductions might be appropriate.” On the economy, said risks of it weakening or heating up too quickly were now balanced, and the next rate decision would depend on data at the time. Regarding future cuts, Musalem said he sees more than one additional 25bps cut for the rest of 2024. On the last meeting where the Fed cut by 50bps, he pushed back on the idea it was a 'catch-up cut' and said inflation had fallen far faster than he had expected and it was appropriate to begin with a strong and clear message to the economy that we're starting from a position of strength.

BOWMAN (Post-Fed): Fed Governor Bowman, the sole voter for a smaller 25bp rate cut, explained her dissent. She sees a risk that the FOMC's larger policy action could be interpreted as a premature declaration of victory on inflation when they have not yet achieved that goal. Bowman believes a more measured pace towards a more neutral policy stance will ensure further progress is made in returning inflation to the 2% goal. She added that this would avoid unnecessarily stoking demand. She added the economy remains strong and the labour market remains near full employment, but she respects and appreciates that colleagues preferred to go with a larger reduction, and remains committed to working with them to ensure policy is appropriately positioned to achieve its dual mandate goals. In a separate speech, Bowman said her estimate of the neutral rate is much higher than before the pandemic, and that policy is not as restrictive as it may seem. Bowman noted that core inflation is still uncomfortably above the 2% target with upside risks, which are still prominent, including supply chain fragility, fiscal policy and mismatch of housing supply and demand. The Fed governor added that the labour market has shown signs of cooling, while wage growth, spending and GDP are not consistent with a material economic weakening and there are still more jobs than available workers. The Governor added that the climb in unemployment is largely due to slowed hiring and improving supply, adding there is considerable pent-up demand and available cash ready to be used as interest rates fall, which is a risk to meeting the inflation goal.

BARKIN (Pre-Fed, August): The Fed will be taking a "test and learn" approach to rate cuts, noting that the current low-hiring, low-firing approach companies are taking is unlikely to persist. He added there is a risk that firms will resort to layoffs if the economy was to weaken. The Richmond Fed President still sees upside risks for inflation but supports a dialling down of rates in the face of a cooling labour market. He believes a large part of the economy is standing ready for the easing cycle to commence. Barkin, in a separate interview with the NY Times, said that 114,000 jobs is still a “reasonable” number, even if it marks a slowdown, and looking ahead he said Fed officials will see August job numbers before they vote on interest rates again at their next meeting. On the possibility of a large halfpoint Fed rate cut, Barkin said “More significant reductions typically would be associated with an economy that feels like it’s deteriorating rapidly. And again, 114,000 jobs, while not as good as we’ve been running, on a long-term basis, is a reasonable number.” In a separate speech, Barkin said the case for lowering in July would have been either absolute conviction that the labour market was on the precipice, or if you thought you had inflation under control. He is pretty optimistic that they see good inflation in the coming months, noting they are closing in on a set of economic numbers that look normal. On the labour market, Barkin says that from what he hears on the ground, is that people are cutting back on hiring, but not firing. No hiring and no firing - This is what they see in the data, and from here it could go either way. He acknowledged job growth has settled down, but the economy is still adding jobs. He also noted that there is a lot more labour supply than thought a year or two ago, and the math of that suggests that the unemployment rate goes up. What would make him more worried is that if job growth started to disappear. He said wages are coming down, suggesting normalisation in the labour market, adding that you've got some time to figure out if the economy is steadily normalizing, or do you have to lean into it.

02 Oct 2024 - 12:50- Fixed IncomeData- Source: Newsquawk