Someone may need to remind Jim Bullard what a “Jim Bullard” does.
In remarks to CNBC Friday morning, Bullard delivered what might fairly be described as a hawkish take on the likely evolution of Fed policy, to the chagrin of risk assets.
“I put us starting in late 2022,” he said, of liftoff (clip below). “My forecast said 3% core PCE in 2021 and 2.5% in 2022.”
“If that’s what you think is going to happen, by the time you get to the end of 2022, you’d already have two years of 2.5% to 3% inflation, so to me that would meet our new framework,” Bullard elaborated. “From there we could bring inflation down over the subsequent horizon.”
Of course, he added myriad caveats about forecast dispersion or, more colloquially, uncertainty, but he called the Fed’s hawkish tilt at the June FOMC “natural.”
“We were expecting a good year, a good reopening, but this is bigger than we were expecting, more inflation than we were expecting, and I think it’s natural that we’ve tilted a little bit more hawkish,” Bullard mused. “The committee has been surprised to the upside over the last six months. If you look at the December 2020 SEPs, we were projecting 4% real GDP growth in 2021. Now we’re saying 7%.”
While rational, that’s not what spoiled markets want to hear. I think the risk now may be that the Fed, having pounded the table so hard on the idea they’d not only countenance an inflation overshoot, but in fact work to engineer one, is increasingly seen as terrified.
That, in the face of just two upside surprises which everyone (doves, hawks and the staunchest Fed critics alike) agreed were almost impossible to parse, unless by “parse” you just mean stating that supply chain issues are pervasive.
The figure (above) wasn’t supposed to scare the Fed out of its newfound socially-conscious agenda. But I think it has. Note that if things had gone as planned, the blue bars and red line in the chart would be dismissed by reference to tame MoM readings. Unfortunately, the MoM prints haven’t been very “tame.”
Although Jerome Powell was keen to emphasize in the press conference that the Fed focuses on longer-term inflation expectations to gauge whether public perception is becoming unmoored, you’d be forgiven for suggesting there’s unspoken anxiety within the Committee about gauges like the University of Michigan and the New York Fed surveys (figure below), which show the consumer is at least a little bit alarmed, certainly on a 12-month horizon, but also out to three and five years.
On the taper debate, Bullard told CNBC that Powell “officially opened the discussion at this past meeting.”
This looks like the beginning of a full-on retreat from a group of technocrats who, as far as anyone knew on Tuesday, were still committed to being patient (even recklessly patient) in the face of surging prices in the interest of not “abandoning” the lower- and middle-income cohorts Powell promised to protect via the tweaked mandate. Those tweaks, you’re reminded, amounted to a belated apology for years spent exacerbating the wealth divide in America.
In any case, if Bullard is feeling hawkish, one shudders to think what kind of tone the “real” hawks will adopt when they saunter out over the coming weeks to deliver their take on where things are. And where things are likely going.
They are talking dirty but I would be surprised if they did anything until they had some data from the fall, when schools open and extra unemployment aid expires. Could they taper in the fall- sure, but more likely it will be after their year end meetings to plan 2022. As far as raising rates- even late 2022 is an eon away- when they raise short rates is going to depend on the course of the economy and the virus.
What a clown show, providing a core PCU number that is actually different from the one published by the Fed. A “Bitter Betrayal” for sure.
PCE not PCU above.
Bullard has long been Mr. Weathervane, changing his narrative monthly.
Tail wagging the dog. One guy speaks and the market spends the rest of the day dissecting as if it’s the only important information that matters for investments. Maybe I’m out of it, but it seems we’re living in a ‘mad mad world’. 24 hour news blows everything up as high as possible to capture ‘clicks’ and eyeballs at any cost. Reality has become only what the digital screen says it is.
Markets (histrionic speculators) leading the FED by the nose again. We’ve seen this movie before. This was the key lesson of Atlanta, January 2019 and ever since. What’s new? Never mind that the bond market thinks this is all nonsense. The FED projects confidence while shaking in their boots.
Wasn’t Bullard the one pandering to Trump and backstabbing Powell and the other governors by publicly saying the FOMC should have been more aggressive in their easing way back…? … if so, he seems like a self serving loose cannon to me….
All that has happened in the last few days when taken in context is good damage control Everyone that read H’s….(last four posts) should take notice of a narrative change and make their adjustments accordingly.. The pendulum still swings and will continue if we do just that .I saw and predicted this but totally underestimated the reaction..Live and learn …
That headline is worthy of a Pulitzer!
Inflation hurts the bottom 50% (living paycheque to …) and hurts those living on fixed income/Social Security the most. And inflation generally helps those with financial assets/property thus exacerbating/widening the wealth gap. And yet the central planners
want to let inflation run hot. I would speculate that any benefit from wage inflation (I’m for higher wages) still doesn’t help the substantial number of good people get ahead, that are living paycheque to paycheque. Would love to read a Heisenberg article on this issue. Thanks.
I suppose there are two ways to approach wealth inequality.
One is to promote policies that benefit lower and middle income groups.
The other is to specifically beat the wealthy into submission. I suppose the must notable example being the French Revolution.
I suppose either approach works. I guess the likes of Bezos, Murdoch, and Koch will decide how they want it. Keep promoting lies and paying off politicians — in a desperate attempt to maintain an unsustainable status quo — then that is a choice for option two.