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No Surprise: Fed Doves Warn Against Jamming on the Brakes

Based on recent statements, the Fed doves outnumber the hawks but analysts disagree.
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Image snip from a Bloomberg video.

Image snip from a Bloomberg video.

No Jamming the Brakes

Bloomberg reports Fed Officials Stress Not Jamming Brakes on Economy as Hikes Loom.

  • Federal Reserve officials said they want to avoiding unnecessarily disrupting the U.S. economy as they prepare to start raising interest rates, showing little stomach for an aggressive 50 basis-point move in March.
  • “You always want to go gradually, in the economy. It is in no one’s interest to try to upset the economy with unexpected adjustments,” Kansas City Fed President Esther George told the Economic Club of Indiana. 
  • San Francisco Fed chief Mary Daly, who has been one of the more dovish officials at the central bank, said “When you’re trying to get an economy from extraordinary support to one that’s going to just gradually put it on to a self-sustaining path, you have to be data-dependent,” she told Reuters in a live-streamed interview. “But you also have to be gradual and not disruptive.”
  • Citing the Fed’s December forecasts, Daly noted that four increases this year -- if that is what transpires -- would lift rates to 1.25% and “that is quite a bit of tightening, but it is also quite a bit of accommodation.”
  • Atlanta Fed President Raphael Bostic told Yahoo Finance that his outlook called for three increases in 2022 and he did not favor raising rates by 50 basis points in March. “We’re not set on any particular trajectory. The data will tell us what is happening,” he said, adding that if month-on-month prices changes moderated from current high levels by the late spring or early summer, he might not need to adjust his rate forecast at all. Bostic sees inflation subsiding to an annual rate of 3% by the end of 2022, compared with almost double that pace in the 12 months through December.
  • Richmond Fed boss Thomas Barkin, in an interview Monday on CNBC, was careful to stick with the message that the pace of policy tightening was not on a preset course. “I’d like the Fed to get better positioned. I think we’ve got a good part of the year to get there,” he said. “That position is somewhere closer to neutral, certainly than we are now, and I think the pace of that just depends on the pace of inflation.”

Bloomberg's chief US economist Anna Wong says “Our baseline is for the Fed to hike five times, each 25 basis points, this year, and balance-sheet runoff to begin in July. Our in-house rule for the Fed’s reaction function flags an upside risk for a 50 basis-point hike in March followed by five 25 basis-point hikes in the rest of the year.”

Pondering the Stunning Growth In Rate Hike Bets and Predictions

On January 29, I was Pondering the Stunning Growth In Rate Hike Bets and Predictions

Projection Synopsis

  • Bank of America amazingly projects 7 hikes, one at every meeting in 2022 plus 4 more in 2023. That would put the Fed Funds Rate at 2.75% to 3.00% at the end of 2023.
  • BNPP projects 6 this year and 3 more in 2023. That would put the Fed Funds Rate at 2.25% to 2.50% at the end of 2023.
  • Deutsche Bank and Wells Fargo project 5 this year and 3 more in 2023. That would put the Fed Funds Rate at 2.0% to 2.25% at the end of 2023.
  • Barclays and UBS project 3 this year with no forecast for 2023.

Recession When?

GDPNow Initial Forecast for 2022 Q1, Chart by Atlanta Fed, Chart Comments by Mish

GDPNow Initial Forecast for 2022 Q1, Chart by Atlanta Fed, Chart Comments by Mish

After three hikes, the yield curve will at best be totally flat but more likely somewhat to seriously inverted and predicting recession.

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With Nearly Everyone Looking the Other Way, It's Time to Discuss Recession

What Can Go Wrong?

  1. The Fed is hiking
  2. Stimulus has worn out
  3. The stock market is stumbling
  4. Pending Homes Sales Unexpectedly Decline 3.8 Percent in December
  5. Merchants are stockpiling and pre-ordering everything
  6. Retail sales are falling
  7. Major deceleration in deficit spending.
  8. Declining working age population will reduce productivity.

The more people that come convinced the Fed will hike 5 times the more confident I am the Fed will be lucky to get in 3. 

Today we can add Bloomberg to the 5 or 6 column.

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