Yesterday several Fed officials spoke about the economy and the direction of monetary policy. In some regards the comments differed considerably.
For example, Minneapolis Fed President Neel Kashkari stated “We at the Federal Reserve probably have more work to do on our end to try to bring inflation back down…most importantly, we should not be fooled by a few months of positive data. We are still well in excess of our 2.0% inflation target, and we need to finish the job.”
Atlanta Federal Reserve Bank President Raphael Bostic stated, “my baseline case is we won’t really be thinking about cutting until well into 2024,” cautioning against taking further hikes off the table if inflation does not cool.
Chicago Fed President Austan Goolsbee stated, “there is still a lot of the impact of the 500 bps we did in the last year that’s still to come…add on that there are tight credit conditions, I think we should be extra mindful, taking in account all that has been done and the only way to do that is sit and watch.”
Is today more opaque than in years’ past or is the lack of clarity only more accentuated because it is the present? Psychology 101 states immediate concerns are more pressing than concerns that occurred in the past.
Today, however, is unprecedented. Short term interest rates were around 0% for almost 12 years. The increase in the overnight from 0.00% to 5% is unprecedented and logarithmic. What will be the impact of such a dramatic and rapid change in monetary policy? Reference points are lacking to guide the decision-making process.
Mistakes will inevitably be made. The question is, however, what will be the significance of these mistakes?
Today President Biden and Speaker McCarthy will meet to discuss the debt ceiling. Has there been movement?
The economy co exists and interreacts with broader society, including government. Public policies—and the political processes that determine them—can change the economy in deep and lasting ways. We may not like them, but we cannot ignore them.
I was reminded yesterday of a quote by the noted economist Kenneth Galbraith. He stated “Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.”
Most often, the necessary changes can only happen, unfortunately in the midst of crisis, the changes at the time of occurrence are viewed somewhere between “the disastrous and unpalatable,” accepting the least bad solution.
Commenting on yesterday’s market action, markets were again quiet with both sides sending mixed signals about the progress of the talks.
Last night the foreign markets were up. London was up 0.14%, Paris up 0.06% and Frankfurt up 0.15%. China was down 0.60%, Japan up 0.73% and Hang Seng up 0.04%.
The Dow should open marginally lower. Treasury Secretary Yellen warned again that “time is running out” to avert an economic catastrophe from failing to raise the debt ceiling ahead or today’s high-profile meeting between the President and House Speaker. The 10-year is up 7/32 to yield 3.48%.
