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Comment: Fed policymakers have a lot of mull over before deciding the next move at the October 29-30 FOMC meeting

The communications blackout period around the October 29-30 FOMC meeting is in effect. It started at midnight on Saturday, October 19 and will run through midnight on Thursday, October 31. Below I review the most recent available public comments from Fed policymakers to try to get a sense of the Committee consensus.

Given the number of policymakers who have reiterated that monetary policy is not on a preset course, and the rising sentiment that a pause could be needed to gauge the impact of the rate cuts from July and September, another cut after the October 29-30 meeting is not a certainty. While the minutes of the September 17-18 meeting suggested policymakers were more worried about a recession, that perception may not have deepened during the intermeeting period.

But first, let’s do a little housekeeping.

  • There are three Fed officials on the public calendar this week. Neither Governor Michelle Bowman nor Dallas Fed President nor New York Fed President John Williams will make comments about monetary policy other than perhaps at statement that they will not make comments about monetary policy.
  • On September 12, 2019, Governor Michelle Bowman was confirmed to the term from February 1, 2020 to January 31, 2034. The spot reserved for a community banker is now secured for the foreseeable future.
  • There remain two vacant seats on the Board of Governors. In early July, President Trump tweeted his intention to nominate Christopher Waller and Judy Shelton to these spots. However, no official nomination followed and the names remain in limbo. The lengthening timeframe probably means that there will be no formal nod, and one or both will eventually withdraw his/her name from consideration.
  • The empty seats mean that the Board hasn’t had its full complement of seven Governors since June 2013.
  • Jerome Powell is coming up on the half-way mark of his four-year appointment as Chair. He was officially sworn in on February 5, 2018. His term as governor does not expire until January 31, 2028. In spite of the bluster on the part of President Trump, Powell is legally secure as Chair and Governor.
  • Vice Chair Richard Clarida’s four-year appointment will be through mid-September 2022. However, his term as Governor expires as of January 31, 2022. He will need to be reappointed to finish out his term as Vice Chair, or at least not be replaced on the Board before then. Governors can remain seated even if the term is expired until a successor is nominated and confirmed.
  • Vice Chair for Supervision Randal Quarles’ appointment will run through mid-October 2021. His term as Governor is through January 31, 2032.
  • The current roster of voting District Bank Presidents is in place until January 28, 2020. The New York Fed has a permanent vote, so it doesn’t change. The Cleveland and Chicago Presidents flip voting status. For the remainder, the current alternates become voters, the current nonvoters become alternates, and the current voters become nonvoters.

The outcome of the next meeting hinges on the judgment of the voters about the next 10 days’ worth of economic data and developments, although all the FOMC participants do have a say as the discussion goes around the table. None of them have absolutely determined on a particular action as appropriate as yet. Still, the leanings of a few are in little doubt. If the vote were taken today, it would face considerable uncertainty. Powell characterized the first rate cut in July as a mid-cycle adjustment. He didn’t use the same label for the second one in September. However, if the FOMC does pause at the October meeting and if the economy does not worsen by the December 10-11 meeting, that may well prove to be an accurate descriptor.

Chair Jerome Powell – His most recent public comments are about two weeks old but probably haven’t changed much in purport. As the spokesman for the whole FOMC, Powel said the US economy was in a “good place” and that “Our [the FOMC’s] job is to keep it there as long as possible”. This has been widely interpreted – and I think correctly – as a signal that another rate cut is definitely on the table at the October 29-30 meeting. However, that doesn’t make it a certainty.

Vice Chair Richard Clarida – He spoke on the eve of the communications blackout period. He reiterated what he and other officials have said before, that the policy outlook is not on a preset course and that these will depend on the economic data. He also noted “The US economy is in a good place, and the baseline outlook is favorable” even as there are risks present.

Vice Chair for Supervision Randal Quarles – He hasn’t commented in recent weeks, but a few days after the September 17-18 meeting did say, “Fundamentally, the US economy is quite solid” although “there are issues about uncertainty around the global situation. The trade policy issue in particular seems to be weighing on business investment.”

Governor Lael Brainard – She hasn’t spoken about monetary policy for a while, rather sticking to topics related to regulation and digital currency. Traditionally she is counted among the more dovish Fed policymakers. At the moment, her votes place her among the consensus of cautious provision of accommodation.

Governor Michelle Bowman – She has rarely strayed from the topic of communities and community banking in her public appearances since becoming a governor. Given the focus on strengthening communities and local employment as part of that, it is likely she is also with the consensus ensuring that the expansion doesn’t falter.

New York Fed President John Williams (voter, moderate) – His public remark of late have been largely taken up with the New York Fed’s response to the cash crunch of mid-September. The New York Fed has been widely criticized for failing to anticipate the demand in repo markets. However, it has more than made up for it in implementing the FOMC’s directives to ensure plenty of liquidity and the return to buying Treasury bills to bulk up reserves. His past history suggests he is also going to vote with the consensus for incremental rate cuts to provide insurance against an economic downturn.

Boston Fed President Eric Rosengren (voter, moderate) – He has dissented against the past two rate cuts. It is entirely possible he will do so should another one be decided on at the October 29-30 meeting. He is focused on the fact that GDP is growing near its potential and that the unemployment rate was a meager 3.5% in September. There is “already a pretty accommodative monetary policy” in place.

Philadelphia Fed President Patrick Harker (voter in 2020, moderate) – He hasn’t addressed monetary policy in the last few weeks but was on record as being against the last rate cut on September 17-18.

Cleveland Fed President Loretta Mester (voter in 2020, moderate hawk) – She is of the view that the US economy is likely to avoid a recession and was against the prior two rate cuts. She thinks the economy “has been resilient through other situations that look like this”, i.e. weak global growth. She would prefer to wait until it is clearer that weakness is “broadening out”.

Richmond Fed President Thomas Barkin (voter in 2021, moderate) – In recent remarks, Barkin looked ahead to the retail sales data (October 16) and consumer spending (October 31). He said, “If you see that bouncing back then I don’t worry about recession as long as consumers spend.” The softness in the September retail report may give him reason to be more concerned.

Atlanta Fed President Raphael Bostic (voter in 2021, moderate) – Bostic sees “lots of reasons to be optimistic about this economy” while also recognizing “that there’s a lot of uncertainty out there”. He thinks recent cuts have helped extend the expansion.

Chicago Fed President Charles Evans (voter, dove) – It is something of a surprise that an inflation dove like Evans has said that it should not be necessary to cut rates further. However, with the economy and monetary policy in a “good place” at present. That does not rule out him voting ‘yes’ if the consensus decides on a cut. It is more probably the case that he wouldn’t dissent rather than being in favor.

St. Louis Fed President James Bullard (voter, dove) – That he is solidly in favor of further rate cuts to address low growth and low inflation is more than evident in his recent dissents in the FOMC vote. He’s added to warnings that policy is not on a preset course.

Minneapolis Fed President Neel Kashkari (voter in 2020, dove) – He is unequivocal in his support for more reductions in short term rates.

Kansas City Fed President Esther George (voter, hawk) – Has already registered two consecutive dissents in the FOMC vote and can be expected to do so again if the Committee consensus is for another cut at the October 29-30 meeting. She is more worried about potential imbalances than too low inflation.

Dallas Fed President Robert Kaplan (voter in 2021, moderate) – He has expressed support for the last two rate cuts, but undecided on whether more are needed to see the economy through the present uncertainties. “This is a fluid situation”, he said.

San Francisco Fed President Mary Daly (voter in 2021, moderate) – She is another of the policymakers who are on the fence as to whether more cuts will be needed or not. She will wait for more data even as “The economy continues to expand at a solid pace.”

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