FED: Cleveland's Hammack: Rates Not Far From Neutral, Upside Inflation Risks
Dec-20 16:23
Cleveland Fed President Hammack's explanation of her dissent in favor of a hold rather than a 25bp cut at the December FOMC meeting (link) conveys that she "viewed my own decision as a close call".
- She notes in a short essay that policy is "not far from a neutral stance" - this echoed language she employed in a December 6 speech. She writes: "Given the health of the labor market, it is important to maintain the focus on returning inflation to 2 percent in a timely fashion. To accomplish this objective, I believe that monetary policy will need to remain modestly restrictive for some time. Based on my estimate that monetary policy is not far from a neutral stance, I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2 percent objective."
- She noted she raised her inflation forecast vs the previous projections, and sees upside risks - compared to the FOMC Statement and Powell noting that the risks to the dual employment and inflation mandates are roughly in balance. She writes: "inflation remains elevated, and recent progress in returning inflation to 2 percent has been uneven...the balance of risks to the outlook appears to be skewed toward higher inflation outcomes. A stall in inflation above 2 percent for too long would risk de-anchoring inflation expectations, making it harder to return inflation to our objective."
- While this is her last meeting as a voter until Cleveland's turn comes again in 2026, her dissent and general outlook indicate that she's among the most hawkish 4 or 5 members of the 19-member FOMC.
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FED: Gov Cook Mentions "Pause", Unsure About Hitting Neutral In Base Case
Nov-20 16:15
Gov Cook doesn't express clear support for a cut or hold in December in her "Economic Outlook" speech (link), and as such her comments lean hawkish given that she is generally considered to be dovish-leaning. While she sees the "totality of the data" as suggesting a "disinflationary trajectory is still in place and that the labor market is gradually cooling" and "I see employment risks as weighted to the downside", she also says "those risks [to employment] appear to have diminished somewhat in recent months".
- Her commentary sounds largely aligned with Chair Powell's, but she notably uses the word "pause" in describing a possible course of action, a term her Board of Governors colleague Kugler also mentioned as part of a hawkish shift in FOMC rhetoric last week.
- Interestingly, even in her core scenario for inflation and employment, she only goes so far as to say "it could well be appropriate to lower the level of policy restriction over time" - rather than saying something like "it would likely be appropriate". Overall this suggests that the December meeting is "live" either way and reinforces that the FOMC has shifted to a more cautious stance this month. Key quotes:
- "It likely will be appropriate to move the policy rate toward a more neutral stance over time... Going forward, I still see the direction of the appropriate policy rate path to be downward, but the magnitude and timing of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. I do not view policy as being on a preset course."
- On scenarios, including a possible "pause": "I am ready to respond to a changing outlook. In fact, I find it helpful to consider a range of scenarios when thinking about the path of policy. If the labor market and inflation continue to progress in line with my forecast, it could well be appropriate to lower the level of policy restriction over time until we near the neutral rate of interest, or the point when monetary policy is neither stimulating nor restricting economic growth. However, if inflation progress slows and the labor market remains solid, I could see a scenario where we pause along the downward path. Alternatively, should the labor market weaken in a substantial way, it could be appropriate to ease policy more quickly."
