St. Louis Fed President James Bullard said the US is “in a much stronger position with respect to reopening we would have anticipated and inflation has come along with it.” He warned that “we have to be ready for the idea that there is upside risk to inflation and for it to go higher.”

Regarding tapering, Bullard said “the playbook from the aftermath of the global financial crisis may not be the same one we use in the aftermath of the pandemic.”

“I don’t think we are in the quiescent, low volatility period we were in the aftermath of the global financial crisis. Instead we are in a high volatility many things happening at once situation and because of that we have to be able to react,” he added.

Dallas Fed President Robert Kaplan said “when we got to March it was clearer that we were going to get the pandemic under control”. And, “by the time we get to June…you’ve really got a big upgrade” on economic outlook. A majority of Fed officials expected rate hikes in 2023. That’s “monetary policymakers simply reacting to the dramatically improved economic outlook.”

Philadelphia Fed President Patrick Harker has indicated that “some additional tightening may be needed to ensure policy is restrictive enough to support both pillars of our dual mandate.” Harker expects that once this point is reached, which he believes should happen this year, the Fed will “hold rates in place and let monetary policy do its work”.

Harker also noted that the economy remains strong and inflation is coming down, albeit slowly. He projected that inflation, currently at a 5% annualized rise in the personal consumption expenditures price index, would fall to 3% to 3.5% this year and reach 2% in 2025. The unemployment rate, currently at 3.5%, is expected to move up to around 4.4% this year amid tepid growth.

The bank president acknowledged the impact of last month’s financial sector woes on the economy, stating that “it will take some time to evaluate how recent events may impact overall economic activity and inflation.”
Harker added that he expects to see tighter credit conditions for households and businesses, which may slow economic activity and hiring, but the full extent of this impact is still unclear.

Atlanta Fed President Raphael Bostic said the job markets had made “sufficient” gains to allow tapering the USD 120B per month asset purchases. He “would be comfortable starting tapering of asset purchase program in November.”

Nevertheless, he noted that “there is significant uncertainty about how long inflationary pressures will last.”

Fed Vice Chair Richard Clarida said in a speech that the US economic fundamentals are “robust”. And if the economic expansion continues in 2019 as he expected, “this will become the longest US expansion in recorded history”.

And, at this stage of the interest rate cycle, it will be “especially important to monitor a wide range of data” for the path of Fed’s policy interest rates. “Data dependence” should play in two distinct roles of “formulation and commination” of monetary policy.

He also noted that “as the economy has moved to a neighborhood consistent with the Fed’s dual-mandate objectives, risks have become more symmetric and less skewed to the downside”.

His full speech here.

In the Beige Book economic report, Fed said that “economic growth downshifted slightly to a moderate pace in early July through August”. The deceleration in activity was “largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.” Other sectors were “constrained by supply disruptions and labor shortages, as opposed to softening demand”

All Districts continued to report “rising employment overall”. All Districts noted “extensive labor shortages that were constraining employment”. A number of Districts reported an “acceleration in wages”, with several noted “particularly brisk wage gains among lower-wage workers”. Inflation was “steady at a elevated pace”. Several Districts indicated that businesses anticipate “significant hikes in their selling prices in the months ahead”.

Full Beige Book here.