If we are saying the presidential election is one reason they are dovish
and
If we think this pivot (for a lack of a better term) will ignite inflation,
Then they have to change the narrative around inflation, no? Why? Because they kept saying the inflation is bad for the American people. Well, if it is bad, then this works against Biden and the establishment. So they will cut a little or not at all or hike.
Just brainstorming something here :)
Powell "But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain. As we look ahead to next year, I want to assure the American people that we’re fully committed to returning inflation to our 2 percent goal.
...
keeping policy restrictive until we’re confident that inflation is on a path to that objective.
...
And, you know, if you have growth that’s robust, what that will mean is probably we’ll keep the labor market very strong. It probably will place some upward pressure on inflation. That could mean that it takes longer to get to 2 percent inflation. That could mean we need to keep rates higher for longer. It could even mean ultimately that we would need to hike again. It just is—that’s the way our policy works."
They can afford being dovish because there are inherent lags in the transmission mechanism of monetary policy that can be measured in quarters. Also all the reported data is backward looking. Very unlikely to change CPI materially during campaigning season. At some point they will change the narrative blaming supply chains, Putin, Greedy corporations, Gas stations, etc.
It is remarkable that Powell did not push back at all, in fact egged it on. I do like the commodity play as well as TIPS, although they are well off their highs from a month ago
Hmmm.
I am not so sure.
If we are saying the presidential election is one reason they are dovish
and
If we think this pivot (for a lack of a better term) will ignite inflation,
Then they have to change the narrative around inflation, no? Why? Because they kept saying the inflation is bad for the American people. Well, if it is bad, then this works against Biden and the establishment. So they will cut a little or not at all or hike.
Just brainstorming something here :)
Powell "But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain. As we look ahead to next year, I want to assure the American people that we’re fully committed to returning inflation to our 2 percent goal.
...
keeping policy restrictive until we’re confident that inflation is on a path to that objective.
...
And, you know, if you have growth that’s robust, what that will mean is probably we’ll keep the labor market very strong. It probably will place some upward pressure on inflation. That could mean that it takes longer to get to 2 percent inflation. That could mean we need to keep rates higher for longer. It could even mean ultimately that we would need to hike again. It just is—that’s the way our policy works."
They can afford being dovish because there are inherent lags in the transmission mechanism of monetary policy that can be measured in quarters. Also all the reported data is backward looking. Very unlikely to change CPI materially during campaigning season. At some point they will change the narrative blaming supply chains, Putin, Greedy corporations, Gas stations, etc.
Yeah, true plus the YOY measurements. By this time next year elections would be history :)
Great as always Florian! Ill be honest FOMC really took me off guard last night, but ALAS we adjust. Onward and upward! Best of luck.
It is remarkable that Powell did not push back at all, in fact egged it on. I do like the commodity play as well as TIPS, although they are well off their highs from a month ago