A lot of Fed speakers on Monday and Tuesday gave the impression that Chair Powell and his senior leadership team were forced to give way to some of the more inflation-fearful regional Fed presidents last week. The change in communication and the dot-plot for 2023 seems to have a lot to do with risk management, acknowledging potential inflation pressures, and the more rapid broad recovery than seen in March given the speed of vaccine rollout. The Fed isn't hawkish as such, instead it's acknowledged that the reopen and normalisation in the US has occurred faster than it first expected. Here's an attempt to summarise who said what, just picking a couple of key remarks from each.
***Dovish:
Williams - The sharp rise of inflation is mostly temporary; discussion on Fed Funds is a long way off.
Mester - Economy not yet at a point where Fed needs to dial back support because of financial stability risks; not done with the pandemic yet; current inflation is all about supply constraints.
Daly - If we let the economy run, millions of Americans can get jobs; important to sustain 2% inflation, not just touch it.
Kashkari - Labour market still in a deep hole; dot-plot has given too hawkish guidance in the past and should be killed off; inflation readings higher than expected, but should be short lived.
***Neutral:
Powell - Maybe all the inflation overshoot is related to reopening related issues; but those effects might be larger and linger longer than expected; will not raise rates because employment is too high; will need patience to see what's happening. Housing market strong; business investment solid.
***Hawkish
Kaplan - Wage pressures are the upside; inflation risks are upward; should take foot off accelerator sooner rather than later.
Bullard - In a much stronger position on reopening than expected, and inflation has come along with it. Evidence is overwhelming that the labour market is tight. US economy is booming.
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