Richmond Fed President Jeffrey was on Fox News on the weekend and touched on the economy.
“Given the economic challenges we’ve faced, I think this economy has turned in an excellent performance,” he said. “The unemployment rate has come down from 10 percent to 5.9 percent and inflation is low and not a problem.”
That doesn’t sound like a hawk.
“Next year, some time, it looks plausible that we’ll start needing to increase interest rates and we’ll try and time that carefully, given what the economy needs,” he said.
That doesn’t either.
I think the Fed can bring rates up to 1.00%, if only to give themselves some breathing room and curb some of the cheap-money excess but I don’t hear much appetite at the Fed for arguing that angle. And if that does become the story it means the terminal top of rates will be 1-2% rather than 3-4% and that has major implications.
Even less hawkish were his comments on the Fed’s balance sheet.
“Even though we stopped buying them, we still hold on to those securities, and so we still have the tremendous amount of reserves we’ve put into the banking system,” Lacker said. “So that stimulus is still there as long as we hold to those and as long as we don’t start selling them.”
One of the next big questions for the Fed is reinvestment. They hold bonds that expire from time to time. At the moment, they’re buying bonds with that cash. If they decide to curb that program it would be a more hawkish stance but the Fed could also start raising rates and continuing to reinvest.