Breitbart Business Digest: The Market Is More Dovish Than the Fed's Top Dove

The Last Hike? Maybe Not

How many Fed officials does it take to screw in a rate pause?

Federal Reserve officials are working overtime to jawbone the market away from the conviction that the Fed will cut rates several times this year. On Friday, Fed Governor Michelle Bowman explained her view that recent inflation and labor market data did not provide convincing evidence that inflation was on a steady downward path.

“In my view, the most recent CPI and employment reports have not provided consistent evidence that inflation is on a downward path, and I will continue to closely monitor the incoming data as I consider the appropriate stance of monetary policy going into our June meeting,” Bowman said at a conference in Frankfurt.

She warned that the market should not assume that the only possible change to rates later this year is a cut. “Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time,” Bowman said.

In other words, that May hike may lead to a June pause, but that does not mean the Fed is done hiking for the year.

Bullard Warns Disinflation Is Not Guaranteed

St. Louis Fed President James Bullard gave a talk on Friday at a conference hosted by Stanford University’s Hoover Institution. He was optimistic that monetary policy and fiscal policy were on the right track to bring down inflation but warned that there are still risks that inflation could remain persistently high.

“The fiscal stimulus is receding, and monetary policy has been adjusted rapidly in the last year to better align with traditional central bank strategy,” he said. “Accordingly, the prospects for continued disinflation are good but not guaranteed.”

Bullard added that so far, core personal consumption expenditures inflation has declined only modestly from the peak levels observed last year.

Bullard said he took some reassurance from “market-based” expectations of inflation, presumably meaning the bond market. Unfortunately, that’s the same market that insists the Fed is going to cut rates later this year. So, perhaps the market-based expectations are not the best guide for monetary policy. Survey expectations point to worsening inflation, with the University of Michigan long-run inflation expectations moving above their recent range in the preliminary May reading.

Bostic Says No Cuts Until Well into 2024

On Monday, it was Atlanta Fed President Raphael Bostic’s turn at the hawkish Fed horn.

“My baseline case is we won’t really be thinking about cutting until well into 2024,” Bostic said in an interview on CNBC. “If you look at most measures of inflation, they’re still two times where our target is. And so that’s a long distance still to go.”

Just like Bowman, Bostic warned that Fed hikes are more likely than Fed cuts.

“If I had a bias between going up and going down as our next action, I would say we might have to go up. What we’ve seen is that inflation has been persistently high. Consumers have been really resilient in terms of their spending and labor markets remain extremely tight,” he said. “All of those suggest that there’s still going to be upward pressure on prices. That is not my base case either.”

Kashkari Sounds Hawkish Too

Neel Kashkari, the Minneapolis Fed President who was once regarded as a major dove but lately has a reputation as an inflation hawk, said on Monday that the Fed has a “long way to go” before inflation will come back down to its target.

“We at the Federal Reserve probably have more work to do on our end to try to bring inflation back down,” Kashkari said during a moderated discussion in St. Paul, Minnesota. “The labor market is still hot, and we have not seen much softening in the labor market. So, that tells me that we have a long way to go before we get inflation back down.”

Kashkari is a voting member of the Federal Open Market Committee this year.

But What About Goolsbee?

Newly minted Chicago Fed President Austan Goolsbee may now be the most dovish Fed official. He told CNBC that he had considered voting against the May hike. But even he does not appear to be set for rate cuts.

“There is still a lot of the impact of the 500 basis points we did in the last year that’s still to come. And you add on that there are tight credit conditions. And I think that we should be extra mindful,” he said in an interview with CNBC. “We need to take that into account and the only way to do that is sit and watch it.”

As of Friday, however, the market is still pricing in a less than one percent chance that the Fed maintains its current rate and no chance at all that rates go higher. In other words, the market is currently more dovish than the most dovish member of the Federal Open Market Committee.