The war in Ukraine and associated international geopolitical crisis continues to evolve rapidly. Just this afternoon IEA members agreed to release 60 million barrels of oil from strategic reserves to mitigate spiking energy prices, and Treasury Secretary Yellen released a statement following a meeting of G7 financial leaders. The Financial Stability Oversight Council, which includes […]
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The minutes didn’t contain anything to meaningfully change our views. We said after CPI (and Bullard’s market-moving remarks) that it’s a close call between whether March liftoff will be 25 basis points or 50 basis points, but we think the former is still more likely. There was nothing in the minutes to suggest that they […]
In the empirical inertial Phillips curve I use today, price inflation does not depend on wage inflation, but rather the unemployment rate gap, lagged inflation, and inflation expectations. And this is what I see as the conventional specification of the Phillips curve today. However, that’s a dramatic break from how I thought about inflation dynamics […]
The FOMC, and particularly Powell, have a difficult task this week, as well as in the weeks and months to come. It’s hard to think of another FOMC meeting before which there has been speculation both that the Fed could surprise to the very hawkish side (accelerate tapering, even end asset purchases outright and lift […]
1. Runoff. In keeping with greater upside risk to the glide path, we see greater risk of an earlier and more-rapid runoff. Our base case is still a July start with ~$100bn/mo caps. The hawkish case is an earlier start and caps maxing out at higher, like $120bn/mo. A reduction of more than $1tn, e.g. […]
Yes, the FOMC is behind the curve. A dangerous place to be, especially if the FOMC is very far behind the curve, as I believe is the case today. When that happens, the probability of recession is higher. On Friday, following the jobs report, we indicated that the risks to our call were more firmly […]
I have long said that forecasting the inflation rate of 2022 would be difficult. Still, inflation (both actual and forecasted) will determine the timing of liftoff. Inflation in 2022 will depend on not only underlying inflation (whatever that is today) but also the persistence of various temporary factors, such as supply shortages and reopening demand. […]
While the new policy framework calls for overshooting the 2% inflation objective after a period of persistent undershooting, it does not explicitly describe the conduct of monetary policy once the overshoot has been achieved and the Committee wants to move inflation back to 2%. Clarida’s Policy Rule for the New FrameworkClarida has said, “Consistent with […]
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Is There AIT in FAIT?
My focus here is whether FOMC’s new framework, Flexible Average Inflation Targeting, or FAIT, is really focused on achieving an average inflation rate of 2%. That is, is there AIT in FAIT? The word “average” is, to be sure, in the name of the new framework and appears in many discussions by FOMC participants of […]
In prepared remarks today, Brainard clarified the meaning of maximum employment as a precondition for liftoff. Brainard’s appearance was bookended by a couple of appearances by Clarida. Chair Powell also spoke today, appearing for a second day for the semiannual monetary policy testimony, this time before the House Financial Services Committee. We covered yesterday’s appearance […]