It’s Been a Busy Week for Fed-Speak, But the Message Is the Same

Published on

It has been a big week for speeches from presidents of the various Federal Reserve banks. Many of them were out on the lecture circuit, speaking at various events and conferences one week after the Federal Open Market Committee (FOMC) met and decided to hold the line on the federal funds rate.

On Monday, Thomas Barkin from the Richmond Fed and John Williams from the New York Fed spoke, followed by Neel Kashkari from the Minneapolis Fed on Tuesday. Fed Vice Chair Philip Jefferson, Boston Fed’s Susan Collins, and Fed Governor Lisa Cook spoke on Wednesday, while San Francisco Fed’s Mary Daly gave a speech on Thursday.

On Friday, there are no fewer than five Fed speakers across the country: Fed Governor Michelle Bowman, Dallas Fed’s Lori Logan, Chicago Fed’s Austan Goolsbee, Kashkari (again), and Fed Vice Chair Michael Barr. Thus, the Fed and its various reserve banks have been busy, and I’m half surprised Fed Chair Jerome Powell didn’t show up at the Tom Brady roast on Sunday.

While we don’t know what Friday’s speakers are going to say just yet, we can make a pretty good guess based on all the other speeches this week: don’t expect interest rates to come down any time soon.

More time to bring down inflation

None of the speakers actually came out and said that interest rates wouldn’t come down any time soon. They all said it was data-dependent, with the trajectory of rates depending on key economic factors, primarily, inflation and the job market.

Pretty much all of the speakers reiterated in different ways what Daly said on Thursday at George Mason University: “We have taken restrictive measures, but it may take more time to bring inflation down.” 

Daly added that it would take a continued downward trajectory in inflation toward the Fed’s 2% target and a cooling job market to spur rate cuts. However, if inflation rates tick up like they have recently or remain flat, then it would not be appropriate to lower rates — unless the job market falters. Right now though, the job market is healthy, she said.

Collins expressed a similar sentiment in her speech on Wednesday at MIT in Cambridge, Mass.

“Stronger-than-anticipated inflation and economic activity suggest that achieving the Fed’s dual mandate goals may take longer than previously thought, and progress may be uneven. Monetary policymaking in the current context requires patience and methodical assessment of the available constellation of information,” Collins said.

She will be looking for sustained disinflation, evidence that wages continue to evolve in a way that is consistent with price stability, and indications that the labor markets are moderating in an orderly way that better aligns labor supply and demand.

Brace for impact

On Monday, Barkin spoke in Columbia, S.C., telling the audience that he is optimistic that the current high rates can “take the edge off demand in order to bring inflation back to our target.”

In other words, he expects all their tightening efforts to slow the economy further. In that sense, he suggests that “the full impact of higher rates is yet to come.” Yay?

“And if the economy slows more significantly, the Fed has enough firepower to support it as necessary,” he added.

Cook and Jefferson also spoke this week, but they mainly discussed topics other than interest rates, while ValueWalk covered what Williams and Kashkari had to say on Tuesday.

Overall, the takeaway is never clear cut because the Fed is very good about staying on message: that every depends on the data. However, that data tells us that it could be a few months before we start to see the movements the Fed is looking for to lower rates. The data also shows that the prior estimate of three interest-rate cuts in 2024 could certainly change when the Fed members make their predictions again in June.