Comments from Logan on the economy, inflation and monetary policy cross the wires:
Fed needs at least two more quarter-point rate hikes.
Skipping a meeting doesn’t change policy destination.
Adjusting policy gradually can reduce risks of sharp economic deterioration.
Gradual policy adjustment helps households, businesses, investors adapt to higher rates.
End goal is to make policy modestly restrictive.
Making policy rate destination clear helps economy adapt, obtain benefits of a skip.
“Unacceptable” that inflation is not headed back to Fed’s 2% target.
After 50 bps of rate hikes, a pause would make sense to determine what further action is appropriate.
Financial conditions are providing a tailwind to the economy.
Higher market rates a message that investors believe monetary policy has work to do.
Long-term rates have risen, but don’t represent as much as a drag on economy as might be expected.
Economic growth is strong, consumer spending solid.
Labor market is balanced, perhaps tightening a bit.
Analysis: The message is hawkish, with some flexibility on the pace. Logan sees at least another 50 basis points of tightening as necessary, while leaving room to skip a meeting or pause afterward to assess the impact. For traders, the distinction is between the timing of the hikes and the eventual destination for rates. A skipped meeting would not necessarily signal that tightening is finished.
Her economic assessment supports that bias. Growth and consumer spending remain strong, the labor market may be tightening, and financial conditions are still providing a tailwind. In her view, higher long-term yields have not created enough of a drag to remove the need for further policy action. The question after another 50 basis points would be whether policy is sufficiently restrictive to put inflation on a path back toward 2%.
This article was written by Greg Michalowski at investinglive.com.
