Lost in the Cohn shuffle was Lael Brainard, and you don’t want to lose track of Lael Brainard.
On Tuesday evening, at a speech in New York to the Money Marketeers of New York University (and yes, that’s fucking hilarious), the uber dove came across as some semblance of hawkish, reiterating Jerome Powell’s comment about “headwinds shifting to tailwinds.”
Specifically, she said this:
In many respects, the macro environment today is the mirror image of the environment we confronted a couple of years ago. In the earlier period, strong headwinds sapped the momentum of the recovery and weighed down the path of policy. Today, with headwinds shifting to tailwinds, the reverse could hold true.
That would appear to open the door to more hikes. She also flagged fiscal stimulus as a significant tailwind to the economy – another hawkish lean.
“Continued gradual increases in the federal funds rate are likely to remain appropriate to ensure inflation rises sustainably to our target and to sustain full employment, keeping in mind that interest rate normalization is well under way and balance sheet runoff is set to reach its steady-state pace later this year,” she continued.
There was the obligatory caveat about how the Fed will “of course” be prepared to “adjust the path of policy” in the event shit goes off the rails (and we can’t imagine what might cause that to happen), but generally speaking, this came across as pretty aggressive – for her, anyway.
In the Q&A, she called the U.S. fiscal stimulus push “very substantial” and said it does “give me greater confidence in the outlook for inflation”.
That prompted Deutsche Bank’s Peter Hooper to suggest that the Fed will raise rates “at least” four times this year, with the “risks moving toward five.” Hooper was speaking to Bloomberg radio.
“This is an important development,” he added.
Indeed.
Gotta love the jawboning from the Fed’s Board of Governors.
They may not know what they’re doing re: monetary or fiscal stimulus, but they have perception (mis)management down to an art form.
In any case Lael Brainard is part of the inner circle, so her comments are important.
They want to get interest rates above 3% so they’ll have room to cut them again when the SHTF. The problem is: They’ll trigger the crack-up in the process.
I saw bits of that live on the DailyFX feed. She was still dovish on the labor and wages data, which was always been the most important data to both Yellen and Yellen’s confidante Lael Brainard.
I’ll bet anyone that 4 hikes aint gonna happen; I’ll give high odds there won’t be 5 and probably not even 3.
The US debt and Fed balance sheet are too big to handle rate hikes, and the optics of huge interest payments from the Treasury to the Fed (even tho they don’t really matter) would be embarrassingly fugly particularly in an election year.
Maybe 1-2 hikes, so will disappoint expectations. Yet another reason for a weakening dollar.
The Fed cannot lose the aura of the “Great Powerful Oz” –hikes are inevitable unless it restarts QE.