For the past year or so, the Fed has come across as more or less “hawkish;” preferring to position themselves as ready to tighten monetary policy via continued interest rate hikes. Following the recent several hikes, the Q1 GDP numbers came in terribly low and the Fed’s anticipated source of “economic growth,” consumer spending, hasn’t been up to par either. The economy, quite frankly, looks sick despite the Fed’s best efforts to increase the cost of living (what they refer to as inflation).
Thus, it makes sense that two recent Fed speeches have included a tone of caution about further interest rate hikes. Last Friday, St. Louis Fed’s James Bullard noted that the economy is showing signs of weakness and argued that earlier months’ rate hike expectations were too aggressive [per CNBC]:
On balance, the U.S. macroeconomic data have been relatively weak since the March...meeting.
As such, Bullard argued that the rate hikes estimates were ”overly aggressive relative to actual incoming data on US.. macroeconomic performance.”
On Tuesday, Minneapolis Fed president Neel Kaskari echoed this same sentiment, arguing that the lack of a clear inflationary trend was troubling. In his mind, the rate of inflation needs to be higher in order to justify higher interest rates. Kashkari emphasized that there was no real inherent need for interest rates to be rushed back to normal levels (as if a .25% hike is a Draconian move).
As we approach the June Fed meeting, we will pay close attention to whether the FOMC follows through with their rate hike estimates. Dr. Thorsten Polleit may have been on to something when he wrote that “the Fed will likely chicken out on planned rate hikes.”
