Taking One Last Beth Before the Fed Blackout Period

Another month of very strong jobs report in the US: nonfarm payroll rose 172,000 in May, blowing past analysts’ expectations of 88,000. The three-month average is now 188,000 — exceptional given that not long ago the talk was about a “breakeven” rate (the job additions needed to hold unemployment steady) close to zero, if not negative.Together with an unemployment rate of 4.3% (down from 4.33% in April to 4.30%), the US labor market is unmistakably reaccelerating. Still, it was a surprise that Beth Hammack, president of the Cleveland Fed, posted on LinkedIn hours after the release that “today’s jobs report reaffirms that the labor market appears to be roughly in balance” and that she “believe[s] persistently high inflation is the bigger concern.” If recent inflationary trends continue, “it may soon be appropriate to act,” she concluded. This is a hawkish call, and she made sure to put it out on the last day before the FOMC’s pre-meeting blackout. Hammack was one of three FOMC members — along with Neel Kashkari (Minneapolis) and Lorie Logan (Dallas) — to dissent at the last FOMC meeting on the grounds that the statement contained an “easing bias.” Given this last-day post, it would not be surprising to see the same three dissent again on June 17, but this time on the lack of a “hiking bias.” Are these the Forward Guidance you are looking for? One reason it may not, though, is Warsh’s stated intention to end forward guidance. As we’ve discussed before, the definition of forward guidance varies depending on who is using it and when. A neutral statement, for instance, can itself be a form of guidance — signaling that rates will remain unchanged near-term. This brings us to a Yahoo Finance interview with New York Fed president John Williams earlier this week. When asked about the easing bias in the last FOMC statement, he agreed that the Fed should drop language signaling that its next move will be a rate cut. “I don’t think forward guidance is particularly helpful right now in terms of trying to communicate monetary policy,” Williams said. “I don’t see an obvious argument that we should change interest rates, but I also don’t see an obvious kind of direction where we would go in the future.” Williams here limits forward guidance to statements that point to the direction of the next move — saying the Fed prefers no change in rates does not, by this definition, count as guidance. This may be close to how Warsh defines forward guidance. If he merely wants to eliminate guidance for future rate changes via the official statement and the dot plot, that is a task he can plausibly achieve. That would mean forward guidance in the broader sense — Fed officials’ public communications of their preferred reaction functions to incoming data — would survive. And this week is a case in point. These ain’t the Forward Guidance you are looking for This week alone we have heard from Logan: I am increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability and appropriately balance both sides of the Fed’s dual mandate. Last week, Governor Lisa Cook: I currently believe that the right course of action is to hold rates steady. However…I am prepared to raise rates, if the expected disinflation does not appear in a timely manner. And Governor Michelle Bowman, on the other side of the argument: I appreciated and supported keeping the language from the March post-meeting statement about additional policy rate adjustments. It is appropriate to look through temporarily elevated inflation readings largely due to higher energy prices It would be a loss if all of these “family fights” were kept behind closed doors and what we were left with were comments like Vice Chair Philip Jefferson’s from last week: I have not prejudged the next meeting and look forward to engaging with my colleagues about the policy necessary to best achieve our dual-mandate goals.