Expectations Over Forward Monetary Policy Decisions.

Mar 18, 2024

This post isn’t an update of the previous post ( an update of the previous analysis of the current scenario will be posted at the end of the month ), this is a post over short-term expectations over monetary policy decisions given the number of monetary policy decisions in the coming days.

Do enjoy the read folks.

United States:

The United States economy continues to perform within the range of expectations; short-term expectations have been skewed by recent data releases, although long-term expectations remain the same.

Figure 1. Soft-Landing Expectations:

The economy remains resilient, and consumers keep up the pace of spending, which has boosted inflation as current inflationary pressures remain given by supply-factors, which monetary policy can’t control.

Figure 2. United States’ Supercore Consumer Price Index Statistics.

This isn't a stock market index nor a tradeable index. — **Source:** *Bloomberg Terminal | United States’ Bureau of Labor Statistics (BLS) |*

Figure 3. United States’ Core Consumer Price Index Statistics.

The latest job market statistics suggested that monetary policy should be shifted dovishly, but as job market statistics remain in the range of FOMC officials’ projections and the last inflation statistical data reports were more elevated than expectations, monetary policy should remain in a hawkish-nimble path; markets expect three rate cuts this year, which is in the range of FOMC officials’ signaled guidance in the Summary of Economic Projections.

Figure 4. FOMC Officials’ Projections Over The United States’ Unemployment Rate.

Figure 5. FOMC Officials’ Rate Projections.

Figure 6. Markets Expect Three Rate Cuts This Year.

Although next week’s FOMC rate decision is accompanied by an update in the Summary of Economic Projections, which will signal the forward monetary policy stance, Jerome Powell’s press conference after the FOMC rate decision will likely clear current uncertainty over the rate stance.

Figure 7. Next Two Weeks’ Data Release Expectations.

All times in the economic calendar are Eastern Standard Time. — **Source:** *QuikStrike^®*

FOMC officials’ statements remain hawkish, far less dovish than in previous months, and the level of disagreement between FOMC officials has increased, as seen in the Philadelphia Fed Partisan Conflict Index, although it’s quite remarkable that they remain hawkish while disagreeing between them. Powell remains neutral, somewhat hawkish.

Figure 8. The Federal Reserve Bank of Philadelphia's Partisan Conflict Index. ( Tracks The Level Of Disagreement Between Officials )

This isn't a stock market index nor a tradeable index. This index tracks the level of disagreement betwen officials. — **Source:** *Philadelphia Fed*

Figure 9. Hawkishness Increased Among FOMC Officials.

Figure 10. FOMC Harker Is The Only Dove, The Rest FOMC Officials Are Either Neutral Or Hawkish.

FOMC Harker was an early advocate of a pause, and his warnings against overtightening policy mark him as more sensitive to the risks to the labor market than some of his colleagues. Chairman Powell does not want to be remembered as the Fed chair who failed to bring down inflation; now that there has been quite a bit of progress, he has pivoted to a more centrist position, emphasizing the need to move “carefully” and to minimize the economic damage from the inflation fight. FOMC Williams as vice chair of the Fed’s policy-setting committee, Williams helped Powell lead the most aggressive round of rate hikes in 40 years. Of late he has said the Fed has likely hiked rates enough, but with inflation still high, is not about to cut them. FOMC Jefferson appears to weigh the risks of over- and under-tightening increasingly equally. Vice Chair of Supervision Barr’s remit is primarily financial regulation. When he does speak about monetary policy he has signaled he feels the Fed’s rate hikes are done. FOMC Waller was an early skeptic of the idea that inflation would be “transitory” and a supporter of frontloading interest-rate hikes, marking him a hawk. In recent months, as inflation has cooled, he has supported moving more carefully, in line with Powell. FOMC Cook sees risks to both the Fed’s price stability mandate and its mandate to foster full employment. FOMC Kugler joined the Fed in September 2023 and gave her first policy speech in February 2024, at which she demurred when asked her view on rate cuts this year. Her sharp focus on inflation suggests she may lean hawkish, but for now we put her in the same centrist camp as Fed Chair Powell and the majority of her colleagues. FOMC Bostic sees good evidence that inflation is trending downward and is keen on averting unnecessary damage to the labor market; at the same time he says he expects two quarter-point interest-rate cuts this year, less than the three-rate-cut median of his colleagues in their December 2023 forecasts. FOMC Daly: A labor economist by training, Daly has repeatedly called for fighting inflation, but as gently as possible. FOMC Collins sees risks lately nearer to balanced. FOMC Austan Goolsbee says inflation is coming down faster than expected, allowing the Fed to pay more attention to its mandate to foster maximum employment. FOMC Mester has said she sees somewhat more persistent inflation than most of her fellow Fed policymakers, but no longer says that more tightening will be needed. FOMC Barkin's remarks continue to show he is worried about high inflation. FOMC Schmid: In embracing a patient approach on policy and no eagerness to cut rates, Schmid appears to be the latest in a long line of Kansas City Fed Presidents with a hawkish outlook. FOMC Kashkari swung from being the Fed’s most dovish policymaker in 2021 to its most hawkish a year later. He no longer appears to be the most hawkish, but he has not retreated much. FOMC Logan says the Fed needs to take financial conditions into account as it sets rates, and her worries about excess inflation remain palpable. FOMC Bowman has backed away from her previously held view that another rate hike will likely be needed, and now says falling inflation will eventually necessitate a reduction in the policy rate. Even so, she regularly mentions that she would support further tightening if needed. Source: Reuters — **Source:** *Reuters*

FOMC Harker was an early advocate of a pause, and his warnings against overtightening policy mark him as more sensitive to the risks to the labor market than some of his colleagues.
Chairman Powell does not want to be remembered as the Fed chair who failed to bring down inflation; now that there has been quite a bit of progress, he has pivoted to a more centrist position, emphasizing the need to move “carefully” and to minimize the economic damage from the inflation fight.
FOMC Williams as vice chair of the Fed’s policy-setting committee, Williams helped Powell lead the most aggressive round of rate hikes in 40 years. Of late he has said the Fed has likely hiked rates enough, but with inflation still high, is not about to cut them.
FOMC Jefferson appears to weigh the risks of over- and under-tightening increasingly equally.
Vice Chair of Supervision Barr’s remit is primarily financial regulation. When he does speak about monetary policy he has signaled he feels the Fed’s rate hikes are done.
FOMC Waller was an early skeptic of the idea that inflation would be “transitory” and a supporter of frontloading interest-rate hikes, marking him a hawk. In recent months, as inflation has cooled, he has supported moving more carefully, in line with Powell.
FOMC Cook sees risks to both the Fed’s price stability mandate and its mandate to foster full employment.
FOMC Kugler joined the Fed in September 2023 and gave her first policy speech in February 2024, at which she demurred when asked her view on rate cuts this year. Her sharp focus on inflation suggests she may lean hawkish, but for now we put her in the same centrist camp as Fed Chair Powell and the majority of her colleagues.
FOMC Bostic sees good evidence that inflation is trending downward and is keen on averting unnecessary damage to the labor market; at the same time he says he expects two quarter-point interest-rate cuts this year, less than the three-rate-cut median of his colleagues in their December 2023 forecasts.
FOMC Daly: A labor economist by training, Daly has repeatedly called for fighting inflation, but as gently as possible.
FOMC Collins sees risks lately nearer to balanced.
FOMC Austan Goolsbee says inflation is coming down faster than expected, allowing the Fed to pay more attention to its mandate to foster maximum employment.
FOMC Mester has said she sees somewhat more persistent inflation than most of her fellow Fed policymakers, but no longer says that more tightening will be needed.
FOMC Barkin's remarks continue to show he is worried about high inflation.
FOMC Schmid: In embracing a patient approach on policy and no eagerness to cut rates, Schmid appears to be the latest in a long line of Kansas City Fed Presidents with a hawkish outlook.
FOMC Kashkari swung from being the Fed’s most dovish policymaker in 2021 to its most hawkish a year later. He no longer appears to be the most hawkish, but he has not retreated much.
FOMC Logan says the Fed needs to take financial conditions into account as it sets rates, and her worries about excess inflation remain palpable.
FOMC Bowman has backed away from her previously held view that another rate hike will likely be needed, and now says falling inflation will eventually necessitate a reduction in the policy rate. Even so, she regularly mentions that she would support further tightening if needed.
Source: Reuters

I expect that FOMC officials will remain focused on price stability as inflation remains far more elevated than the FOMC's price stability goal. The next Personal Consumption Expenditures (PCE) inflation data release will likely skew the forward monetary policy stance as monetary policy is data-dependent, although Personal Consumption Expenditures (PCE) inflation statistics remain in the range of FOMC officials' projections.

Figure 11. FOMC Officials’ Projections Over Personal Consumption Expenditures (PCE) Inflation.

As always, if inflation data releases are more elevated than expectations, yields ( TTT 0.00%↑ ) and the dollar ( UUP 0.00%↑ ) should rise, and markets ( DIA 0.00%↑SPY 0.00%↑QQQ 0.00%↑IWM 0.00%↑TLT 0.00%↑ ) should lower and vice versa.

Europe:

The last rate decision by the European Central Bank was as expected, the European Central Bank's Governing Council members remain focused on price stability, maintaining a hawkish-nimble stance. The next inflation data will likely skew the forward monetary policy stance, current inflationary pressures remain supply-driven.

Figure 12. Next Two Weeks’ Data Release Expectations.

The next speech by the European Central Bank's Ms. Lagarde will likely clear the current monetary policy stance. It is remarkable that the European Central Bank's Governing Council members remain in a neutral, somewhat hawkish stance; although dovishness has surged in recent months.

Figure 13. European Central Bank’s Governing Council Hawk & Dove Members.

If data releases are within the range of expectations, yields and the euro should rise and markets should lower, and vice versa.

United Kingdom:

The United Kingdom's economy keeps performing within expectations, the previous inflation statistical data report was quite elevated, and recent statistics suggest that monetary policy should be shifted dovish. The forward inflation and Gross Domestic Product (GDP) data releases will likely skew the forward monetary policy, although expectations remain for a hawkish hold in the upcoming Bank of England interest rate decision.-

Figure 14. Next Two Weeks’ Data Release Expectations.

The Bank of England's Monetary Policy Committee members remain in a neutral, somewhat hawkish stance, it's remarkable that Governor Bailey has shifted less dovish in recent months.

Figure 15. Bank of England Monetary Policy Committee’s Hawks & Doves.

Markets still remain far more dovish than the Bank of England's Monetary Policy Committee's members signaled rate guidance and stance, if data releases are within the range of expectations, yields and the pound should rise and markets should lower on a hawkish shift, if data releases aren't within the range of expectations, yields and the pound should lower and markets should rise on a dovish shift.

Asia:

China:

I expect the People's Bank of China to keep its current monetary policy stance in order to meet the government's growth goals.There's nothing much to add over China's monetary policy, expectations remain the same.

Japan:

The Japanese economy keeps performing within the range of expectations, markets remain optimistic over the exit of the ultra-dovish monetary policy stance of the Bank of Japan. Supply chains remain a factor that keeps forward expectations over inflation elevated, the next Japanese export statistical data release should reflect the supply chain disruptions.

Figure 16. Next Two Weeks’ Data Release Expectations.

Bank of Japan's members remain neutral, neither too hawkish nor too dovish, but both markets and Bank of Japan members agree that the end of the ultra-dovish monetary policy stance is near.

Figure 17. Bank Of Japan’s Hawks & Doves.

Figure 18. Market Expectations Are For A Rate Hike In March & April Of This Year.

To conclude, I believe markets will continue their pace while the current untra-dovish rate stance concludes. Japanese markets remain cheap in dollar terms, even though Japanese markets reach all-time highs every week, I believe they’re still undervalued.

Note:

Given the reader/viewer to subscriber statistic ( the statistic indicates that there are more readers/viewers without subscribing than subscribed ), I decided to momentarily make the account private, which makes people subscribe in order to read; the research posted remains free. I don't capitalize what I post or the reader or subscription numbers, so this measure is only to equilibrate the statistic. I intended to post this on Sunday; this, as mentioned before, is my hobby, not my job ( I’m retired ).

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