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More from Waller/George: We do not want inflation expectations to get unanchored

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  • Fed’s Waller/George add to the comments
Greg Michalowski

More Fed’s George and Waller:

George:

  • US consumption is holding up
  • this is a difficult economy to which to bring workers in and meet the demand we are seeing today
  • when job vacancies come down, you tend to see unemployment rate rising
  • there is strong resolve to bring inflation back to target
  • would like to see a soft landing, but there could be a more difficult path to bring inflation under control
  • with where rates are, the Fed’s MBS portfolio may sit there for a bit and may require sales down the road

Waller:

  • we do not want inflation expectations to get unanchored
  • even if don’t normally respond to supply shocks, we have to now to keep inflation expectations anchored
  • sees positive growth for the rest of the year
  • need to have growth below trend to get price pressures down
  • Waller refuses to give his lean toward the September rate hike
  • strangers labor market I’ve seen in my career
  • how high rates go will depend on inflation data
  • if inflation pops back up, rates are going to have to go higher than 4%
  • you’re not going to see firms laying off workers en mass
  • we can put downward pressure on prices without really large effect on unemployment
  • if unemployment stays in the 5% can be really aggressive on inflation
  • if we don’t get inflation down we are in trouble
  • we have to do what we have to do to get inflation down
  • QT is going well
  • we have to get rate hikes in now before labor market really goes down
  • want to be aggressive with rate hikes when economy can take a punch
  • rough estimate is that 1 trillion of runoff from QT is about 25 basis points worth rate hikes

Fed officials are being more hawkish in the face of the next meeting which will take place on Wednesday, September 21.

After today, the Fed will be in the quiet period, where officials won’t be speaking. Of course next week we have the CPI data which traders are expecting will show a decline of -0.1% MoM and +0.3% for the core measure. That would bring the headline YoY down to 8.1% from 8.5% last month.The Core YoY would move up to 6.0% from 5.9% however.

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