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Nothing new look about the Fed minutes. Higher for longer, wages too strong. Kill the rich and steal their money to fight inflation.
Wait. Sorry. AOC wrote that last bit. Think it's one of her presidential proposals for 2028.
No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time.
In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.
A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path.
Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.
OK. Pretty clear, right?
Then we've got Kashkari with his 'mea culpa' about the Fed and many economists, missing the inflation signals, the models were flawed etc.
However, the one interesting part is this, firmly rooted in the 'be careful what you wish for' category 👇
As I’ve discussed publicly for some time, I have been trying to make sense of the mixed signals the economy is sending. When I travel across the Ninth Federal Reserve District, the overwhelming concern I still hear from businesses of all sizes is one of a labor shortage.
And, yes, wages are climbing, but on average they haven’t been keeping up with inflation. Real wages have been falling. Is this really a tight labor market? Corporate profits are up, and the labor share of income is actually declining. If the labor share isn’t going to increase in this “tight” labor market, when will it?
Says the guy actively trying to slow the economy because wages are too high...
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Anyway, I keep coming back to this Goldman chart and those little red diamonds.
What that shows is that if inflation slows while incomes continue to rise, (or at least continue rising at current pace and overtake inflation), then real wages could flip positive.
Especially if these comments from the minutes are representative of the general feeling among employers (the ones that didn't overhire in recent years, you know who you are) 👇
Participants commented that labor demand had remained strong to date despite the slowdown in economic growth, with a few remarking that some business contacts reported that they would be keen to retain workers even in the face of slowing demand for output because of their recent experiences of labor shortages and hiring challenges.
This has always been the challenge for the soft-landing. Balance will be very hard to simply restore in a matter of months.
JOLTS data continued to paint the same tight labour market picture yesterday.
The pre-Covid norm was somewhere between 6 to 8 million openings. We're still way above that.
And the ISM manufacturing data reinforces Kashkari's if not now... when? point.
New orders contracting while employment is expanding is an intriguing trend to monitor. Prices paid, as a proxy for inflation, was at least a positive.
No doubt we'll hear plenty more from the Fed's talking heads over the coming year, so here's your who's who guide via Wells Fargo 👇
Bullard's free to hawk it up as much as he wants, but he doesn't get a vote in 2023. Bloomberg reckon there'll be a slightly more dovish tilt to the gang now...
But it'd be pretty hard to come in and be more hawkish than the committee that did this...
It's all about the labour market. Until that weakens, any pivot hopes are just distant dreams.