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Financial Bulletin
Many senior Fed officials said that the call for interest rate hikes is still there, and they are generally closely focused on U.S. bond yields, and they all agree that inflation is too high
On Tuesday, a number of senior Federal Reserve officials spoke. Two of the senior officials, Fed Governor Bowman and Minneapolis Fed President Kashkari, both delivered hawkish speeches, mentioning that the Fed may still raise interest rates in the future, which caused the dollar to rise on the day and put pressure on the prices of crude oil, gold and other commodities. Officials generally say inflation remains too high and fighting it is a top priority. Many people have mentioned that rising bond yields have led to tighter financial conditions.
Kashkari: The battle against inflation is not over yet
Minneapolis Fed President Kashkari said that Fed policymakers have not yet won the battle against inflation. The Fed must bring inflation back down to 2% within a reasonable period of time.
Kashkari said further tightening of monetary policy would be considered if necessary. He reiterated that it is too early to say whether further rate hikes are needed, and officials need to continue to monitor the performance of the data, especially the inflation data. Inflation and employment data must be allowed to guide the Fed. If inflation picks up, then the Fed's job isn't done. Ultimately, economic performance will tell us how much action is needed to achieve this goal, and it is not yet known. In addition, there is no talk of a rate cut.
According to Kashkari, the dollar is quite strong.
Kashkari revealed that the Fed was surprised by the growth of US GDP. There are not many signs that the US economy is weakening. He also noted that there is a structural shortage of housing in the United States.
Fed Governor Bowman: Expect further rate hikes are needed
Fed Governor Bowman said she had supported the Fed at the October 10-November 31 FOMC monetary policy meeting, but still expected the Fed to raise interest rates further. If progress in the fight against high inflation stalls, it will support continued rate hikes. It is unclear to what extent tightening will affect the U.S. economy and inflation.
However, Bowman also added that the surge in Treasury yields since September has led to tighter financial conditions.
Bowman also said that he would closely monitor the subsequent release of US economic data. She mentioned that there is an unusually high level of uncertainty in the economic outlook, especially given recent data surprises, data revisions and ongoing geopolitical risks. According to Bowman, the latest jobs report shows solid job growth in the U.S. labor market.
Fed Governor Waller: The surge in the 10-year Treasury yield is an earthquake
Fed Governor Waller said that for the bond market, the surge in US Treasury yields in recent weeks is tantamount to an "earthquake". The yield on the 10-year Treasury note has risen by more than 7 basis points since the end of July, so it has attracted a lot of attention. Although yields have retreated over the past few days, with the yield on the 100-year Treasury note falling to 10.4%, it rose above 55% last month. Bond investors are considering whether Treasury yields will regain their upward trend.
Waller noted that the increase in U.S. government borrowing has raised expectations for future interest rate increases, while the Fed leaves room for another rate hike in the coming months.
However, Waller mentioned that tighter financial conditions due to higher bond yields could dampen the momentum for further rate hikes.
Waller said U.S. prices may not fall back to pre-pandemic levels.
Waller believes that the Fed's demand for real-time economic data is increasing. If the federal government shuts down, the Fed will not have access to any data to assess the U.S. economy and decide on monetary policy.
Waller also said the Fed has other tools if rate hikes cause instability.
Dallas Fed President: Inflation is still too high to fall to 2%
Dallas Fed President Logan said it was crucial for the Fed to remain faithful to its 2% inflation target. The focus must remain on curbing inflation in a timely manner. While efforts to combat high inflation have made progress, inflation remains too high. The inflation data seems to imply that inflation is falling back towards 3% rather than towards 2%.
Logan noted that there are some important signs of cooling in the U.S. labor market. The employed population is above trend, but job vacancies remain stable. It would be appropriate for the FOMC to hold its ground in November.
Logan expects to see continued tightening of financial conditions. He said he would pay attention to the trend of US Treasury yields to weigh the impact on policy. Logan also mentioned that he is very aware of the economic risks posed by the situation in the Middle East.
Chicago Fed President: Don't want to make promises upfront on interest rate decisions
The dovish Chicago Fed President Goolsbee said the Fed is watching yields and needs to identify the drivers of rising long-term interest rates.
Goolsbee believes that the U.S. job market is becoming more balanced. But he still said he didn't want to make a pre-commitment on the interest rate decision. He noted that it is clear that inflation is now a more critical part of the task and that the Fed must bring it down, which is the first event.
Barr, Fed Vice Chair for Supervision: remains committed to curbing inflation
Michael Barr, the Fed's vice chair for supervision, said the Fed remains committed to curbing inflation. It is vital that we continue to do the necessary work to ensure that inflation is brought down to 2%.
Barr's speech focused more on the financial risks posed by private stablecoins. He reiterated at the Washington Fintech Week event that the Federal Reserve has concerns about the potential impact of crypto stablecoins on the U.S. financial system. If left unchecked, these tokens can equate to private funds and have a destabilizing impact on finance. Barr has previously said that private sector crypto tokens pegged to assets such as the U.S. dollar could scale rapidly due to financial network effects.
Barr also reiterated that the Fed will continue to study the technology needed for central bank-backed digital currencies. He has said that the Fed will not move forward with any plans unless Congress and the executive branch of government want to.