April 6 the minutes to the March 16 #FOMC Meeting will be released.
Those minutes will provide us with the roadmap the Federal Reserve plans to reduce it’s mammoth balance sheet. They hope to achieve a reduction of ~$3 trillion over 3 years.
Those minutes will provide us with the roadmap the Federal Reserve plans to reduce it’s mammoth balance sheet. They hope to achieve a reduction of ~$3 trillion over 3 years.
They are expected to start with reductions of about $80b per month in Treasury bonds and MBS to roll off the balance sheet. They hope that the reductions will proceed without a lot of attention. They are expected to announce reductions at the May meeting.
They are also expected to raise rate by a 0.5% at the May meeting. The focus will shift quickly to whether they raise another 0.5% in June. Watch for the hawkish tenor of meeting participants.
This tightening cycle will be the fastest since 1994, if not faster, off a lower base
This tightening cycle will be the fastest since 1994, if not faster, off a lower base
We are starting at zero, not 3% but actually fighting a real inflation.
In 1994, the Former Fed Chairman Alan Greenspan had a checklist of conditions he believed would trigger inflation. But , the world had shifted and instead he preempted a non existent inflation…
In 1994, the Former Fed Chairman Alan Greenspan had a checklist of conditions he believed would trigger inflation. But , the world had shifted and instead he preempted a non existent inflation…
The economy slowed to a crawl, unemployment started to rise and after the Fed doubled rates from 3 to 6%, they were forced to do a U-turn in second half of 1995 to prevent an economic train wreck.
This time they are behind the curve, combating a more sustained surge in prices
This time they are behind the curve, combating a more sustained surge in prices
The only road map we have to how far the Fed would like to go is in comments by @federalreserve Chair Powell at the March 16 press conference.
He said he would like to seen labor markets to return to the levels we saw prior to the crisis.
He said he would like to seen labor markets to return to the levels we saw prior to the crisis.
In 2019 and early 2020, job openings per worker looking for a job were 1:1, wages were accelerating faster than inflation, albeit a small fraction of what they are rising at today. Wages for non supervisory leisure & hospitality workers ⬆️ accelerated fastest >11% in March.
We are a long way from there. The ratio of job opening per active worker looking was 1.8 in Feb and looks like it went even higher (new record) in March. The demand for workers has to drop, supply surge and some combination of both to get us back to 1:1.
Labor force participation is up but supply is very constrained - aging, COVID losses and huge shortfall in immigration.
Refugees not enough to fill those holes. Need to see very large slowdown in job openings. The magnitude needed have not occurred outside of recession.
Refugees not enough to fill those holes. Need to see very large slowdown in job openings. The magnitude needed have not occurred outside of recession.
Add pressures for Europe to move away from Russia as an energy source sooner and expand sanctions and the feedback loop in inflation & stagnation (or worse) intensifies.
Even if war in Ukraine were to end tomorrow, atrocities by Russian troops mean sanctions will persist.
Even if war in Ukraine were to end tomorrow, atrocities by Russian troops mean sanctions will persist.
This so very hard to think about but the Fed has to look at the whole of the problem and the economic fallout, which will make their job all the more challenging.
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