Our takeaway: Mark Kashkari down as an advocate for a June pause.
The fed is going to attempt to contain markets enthusiasm by threatening more tightening. Truth is the Fed knows it has tightened at an unprecedented rate and the market has been waking up to the reality that we really don’t know how this is going to play out.
The market is pricing in that the Fed is cutting rates in the 2H for a reason, it was likely the plan the entire time.
Over the last ~40 years, the Fed has made significant progress developing its tools and analytical abilities. When inflation was a real issue in the 70s, there were likely less than a million computers (personal computer wasn’t developed until late 70s and then it was mostly for hobbyists). The ability for companies to adjust capacity to demand and for the policy makers to respond to economic forces is simply completely different today.
What this means is that the Fed has become more nimble. Every year that goes buy, the Fed develops better systems and analytical tools to grasp a clearer – real-time view of the economy. The fed has been willing to make bigger moves this cycle – because it has become much more confident in its precision.
When Inflation was way too high last year – the Fed always knew that the worst that would happen if it tightened too quickly – was that the Fed would have to start cutting rates. Given how good the data is today, the Fed can do this based on a trend int he data that materializes over ~8-9 week period between meetings. Now the Fed has much more fire power to use to offset any economic slowing that might occur.
What you need to know:
Minneapolis Fed President Neel Kashkari said on Sunday that he is open to the idea of the Federal Reserve pausing its interest-rate increases in June, another signal that some policymakers are willing to take a more cautious approach to tightening monetary policy as inflation shows signs of slowing.
Kashkari, who is a voting member of the Fed’s rate-setting committee this year, said in an interview with the Wall Street Journal that he believes the central bank has made “good progress” in bringing down inflation, which is running at its highest level in 40 years. At the same time, he is concerned about the risk that rate hikes will slow the economy too much. “I’m open to the idea that we can move a little bit more slowly from here,” Kashkari said. “A skip to get more information is very different in my mind than, ‘Hey, we think we’re done.’”
Kashkari’s comments come as the Fed is facing mounting pressure to slow its rate-hike campaign. Inflation has come down from its peak in March, but it is still well above the Fed’s 2% target. And there are growing signs that the economy is slowing, which could make it more difficult for the Fed to raise rates without tipping the economy into a recession.
Other Fed officials have also signaled that they are open to the idea of pausing rate hikes in June. Richmond Fed President Thomas Barkin said last week that he believes the Fed is “close to the peak” of its rate-hike cycle. And Atlanta Fed President Raphael Bostic said on Friday that he is “watching very closely” to see how the economy responds to the Fed’s recent rate hikes.
The Fed is scheduled to meet on June 14-15 to discuss monetary policy. It is widely expected that the central bank will raise rates by 50 basis points at that meeting, but it is possible that policymakers could decide to pause the rate-hike cycle if they believe that inflation is coming down.
Kashkari’s comments are likely to be welcomed by investors who are concerned about the potential for a recession. But they could also fuel inflation expectations, which could make it more difficult for the Fed to bring inflation down.
Overall, Kashkari’s comments suggest that the Fed is facing a difficult balancing act. The central bank wants to raise rates enough to bring inflation down, but it also wants to avoid raising rates so much that it slows the economy too much. It remains to be seen how the Fed will navigate this difficult path.
Fed Scholar 
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