Kansas City Fed President Esther George said yesterday, “it is clear that removing accommodation is required. How much and how aggressively accommodation should be removed is far more uncertain.”

“Given the state of the economy, with inflation at a 40-year high and the unemployment rate near record lows, moving expeditiously to a neutral stance of policy is appropriate,” she added.

“At the same time, the factors I noted earlier, including monitoring risks, the responsiveness of activity to interest rate changes, and yield curve developments will be important guides to that pace in my view.”

On the topic of yield curve inversion, George said, “An inverted curve has implications for financial stability with incentives for reach-for-yield behavior. An inverted yield curve also pressures traditional bank lending models that rely on net interest margins, or the spread between borrowing short and lending long. Community banks in particular rely on net interest margins to maintain their profitability.”

Fed Governor Christopher Waller said in a speech over the weekend that “if the data comes in as I expect, I will support a similar-sized move at our July meeting,” referring to the 75bps hike at the June meeting. He added, “the Fed is ‘all in’ on re-establishing price stability.”

“It should not have been a surprise that the policy rate would rise fast in 2022. Rate hikes would need to be larger and more frequent, relative to the 2015-2018 tightening pace, to get back to neutral.”

“Looking back, should the Committee have signaled a steeper rate path once the liftoff criteria had been met? Perhaps another lesson is that giving forward guidance about liftoff should also include forward guidance about the possible path of the policy rate after liftoff.”

Full speech here.

San Francisco Fed President Mary Daly weighed in on the implications of the recent spike in the benchmark 10-year Treasury note yield, which marked a 16-year peak at 4.8%.

“If financial conditions… remain tight, the need for us to take further action is diminished,” she said yesterday, adding that the role of the financial markets in this scenario, suggesting that “they’ve done the work.”

On the market’s response to rising bond yields, she observed a dip in probabilities for another hike at the upcoming November meeting. “To me, that says the markets are understanding how we think about things and they do have the reaction function in mind,” she elaborated.

Daly reiterated that continual observation of economic indicators, specifically a “cooling labor market” and inflation gravitating towards target, could justify steadiness in interest rates.

She elaborated that maintaining rates isn’t a passive stance but an “active policy action,” especially as declining inflation augments the restrictive impact of existing policy measures.

However, she also emphasized adaptability, hinting that should economic indicators such as growth and inflation not decelerate as expected, or if financial conditions become overly relaxed, Fed is prepared to raise rates until monetary policy achieves its desired restrictiveness. “We need to keep an open mind, and have optionality,” she underscored.

In the remarks prepared for a Congressional testimony on Tuesday, Fed Chair Jerome Powell said, “indicators of economic activity and employment have turned up recently.” As with overall economic activity, “conditions in the labor market have recently improved”. The recovery has “progressed more quickly” than generally expected and looks to “strengthening”.

Nevertheless, “the sectors of the economy most adversely affected by the resurgence of the virus, and by greater social distancing, remain weak,” he added. “And the unemployment rate—still elevated at 6.2 percent—underestimates the shortfall, particularly as labor market participation remains notably below pre-pandemic levels.”

“We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible on behalf of communities, families, and businesses across the country,” Powell reiterated.

Full remarks here.

Minneapolis Fed President Neel Kashkari said in a Bloomberg interview, “if we see a few more jobs reports like the one we just got, then I would feel comfortable saying yeah, we are — maybe haven’t completely filled the hole that we’ve been in — but we’ve made a lot of progress, and now, then will be the time to start tapering our asset purchases.”

“I’m not convinced we were actually at maximum employment before the Covid shock hit us. So, that’s exactly why I want us to be really humble about declaring, ‘This is as good as it can get’,” he said.

He added that labor force participation and employment rates have to be “at least back to where they were before” and that’s a “reasonable thing for us to try to achieve.”

Philadelphia Fed President Patrick Harker said yesterday that he sees two more rate hike this year. He noted it’s “prudent to continue to move away from the zero lower bound”. And Inflation “does seem to be moving toward 2%”. He added that there is “not much slack in the labor markets”. Hence, it’s appropriate to continue rate hikes “judiciously”.

And if there is an “acceleration of inflation”, then he “supportive of a third”. Though, he is not yet seeing a “rapid acceleration” in inflation yet.