Fed's Waller is speaking and says:
- The start of policy easing and the number of rate cuts will depend on incoming data.
- The Committee can wait a little longer to ease monetary policy.
- Puzzled by the narrative that delaying cuts for a meeting or two risks causing a recession.
- Supposed asymmetry of lagged effects of rate hikes vs rate cuts not supported by any model I’m aware of.
- In the absence of a major economic shock, delaying cuts by a few months should not have a substantial impact on the economy near term.
- Cutting too soon could squander inflation progress and risk considerable harm to the economy.
- Data received since the last speech on Jan 16 has reinforced the view that we need to verify inflation progress from the last half of 2023 will continue.
- There is no rush to begin cutting interest rates.
- The strength of the economy and recent inflation data mean it is appropriate 'to be patient, careful, methodical, deliberative'... 'whatever word you pick, they all translate to one idea: what’s the rush?'
- The CPI report last week is a reminder that ongoing progress on inflation is not assured.
- It's not clear yet if the CPI was driven by odd seasonal factors & outsized housing cost increases or signals inflation is stickier than thought and will be harder to bring down to target.
- Need to see more data to know if January CPI was 'more noise than signal'.
- This means waiting longer before having enough confidence that starting rate cuts will keep us on the path for 2% inflation.
- The strength of output and employment growth means there 'is no great urgency' to ease policy.
- Still expect to ease policy this year.
- Recent hotter-than-expected data validates Chair Powell's 'careful risk management approach'.
- The risk of waiting a little longer to ease is lower than the risk of acting too soon.
- Several indicators suggest some slowing in growth.
- Latest data on job openings and quits may indicate labor market moderation may have stalled.
- Based on CPI and PPI, January core PCE may be 2.8% at a 12-month rate, 2.4% at a 3-month rate, and 2.5% at a 6-month rate.
- CPI revisions on Feb 9 did not change the picture of inflation improvement in 2023.
- It's comforting to know the progress we made was real and not a mirage.
- Still see wage growth 'somewhat elevated' to achieve a 2% inflation goal.
- Watching to see if housing costs continue to run higher than expected.
- One question is whether elevated labor costs are impeding progress on service inflation ex-housing.
- Considering all inflation aspects, 'I see predominantly upside risks' to the expectation inflation will keep moving to the 2% goal.
- Need to see a couple more months of inflation data to be sure if January was a 'fluke' and we are still on track to price stability.
- There are no indications of an imminent recession
Waller is pretty adamant of his view and that is not off others on the Fed board. He is a permanent voting member as a Governor on the Federal Reserve Board.
Looking at the 2-year yield, the yield is back between the 100 and 200 hour MA and has traded above and below the 50% midpoint over the last week or so of trading (at 4.69%). THe high yield in 2023 reached 5.259% in November. That high yield was the highest since December 2000. The high yield in 2006 reached 5.283%. The low was at 4.121%.
