Powell Opines On Asset Purchases, Waller Says Economy ‘Ready To Rip’
Powell Opines On Asset Purchases, Waller Says Economy ‘Ready To Rip’
Federal Reserve Chairman Jay Powell gave markets an important morsel this week when he opined on the timing of when the Fed would taper asset purchases in relation to when it would raise rates. He clarified that the world’s most important central bank will slow the pace of its bond purchase “well-before” it decided to raise rates. He spoke at the Economic Club of Washington DC. The comments came only a day after the Labor Department came out with its inflation numbers. The CPI saw the biggest one-month jump since 2012. Worry not say most Fed officials. This inflation will be transitory and remember, the secular deflationary forces we have been facing for the last decade seem unlikely to ‘turn on a dime’.
The Fed released the Beige Book which is an informative economic survey across the different regions covered by the respective Regional Banks. Businesses reported one of the main sources of costs was supply-chain disruptions. Obtaining shipments from overseas in a timely and cost-effective manner is becoming problematic. The report found the economic activity accelerated at a moderate pace in line with successful vaccination efforts and higher than expected government stimulus hit consumer wallets. Those who analyze Fed words very closely noted that in the Beige Book release this week they used the word ‘shortage’ or ‘shortages’ a record high of 37 times. The last record was in March and mentioned the term six less times than the recent release.
The Dallas, Philadelphia and San Francisco banks all noted that the week-long traffic jam at the Suez Canal likely contributed in the short-term. Semi-conductor shortages were mentioned specifically a high number of times. Despite this, many positives were seen across districts including robust manufacturing growth.
Christopher Waller gave one of his first publicized interviews since ascending from Jeremy Bullard’s head of Research at the St. Louis Federal Reserve. As we predicted upon his nomination, he is in the ultra-dovish camp and in fact was apparently integral in the research efforts behind the eventual adoption of the Adjusted Inflation Target framework. If someone is looking for a Fed member to blink, don’t look at him.
Mr. Waller got interviewed by CNBC’s Steve Liesman. He said the economy is “ready to rip.” He mentioned he expected the highest growth rates in decades, inflation rates at 2 and a half percent and for employment to steadily get better. You might expect him to then talk about restraint or tightening of Fed policy, however, he didn’t take this tone at all. He said the Fed was going to let the economy go and not spoil the fun, in line with the goals of AIT. He also flat out rejected the SEP, or the dot plot, in the interview with Liesman. Powell has also cast doubt on the dot plot in some recent comments. This fixture of Fed watching has been a pretty important tool over the years to evaluate future Fed actions.
Powell also opined on cryptocurrency and said the following, “What people call cryptocurrencies, they’re really vehicles for speculation. No one is using them for payments, for example, like the dollar.” He further elaborated, that in his opinion, he viewed cryptocurrency as more similar to a commodity, like gold. Powell has said a ‘digital dollar’ is a very high priority for the leadership of the Federal Reserve.
Asset purchases continued at a pace of $40 billion a month for MBS and $80 billion a month for Treasuries. The benchmark yield on the 10 year is 1.66%.
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