Halyard’s Weekly Wrap – 11/19/21

At the press conference following the last FOMC meeting, chairman Powell described the employment recovery as incomplete, leaving market participants to conclude that the then just decided directive to taper open market purchases would be the modus operandi, at least for the foreseeable future.  We call that interpretation into question with today’s comments by Vice Chairman Richard Clarida and Fed Governor Chris Waller.  In separate speeches they both communicated that the Fed may need to discuss speeding up to pace of taper at the meeting in December.  That’s definitely a hawkish turn and could set up the first split decision vote on monetary policy since 2005.  Both Powell and Governor Brainard are dovish, favoring easier monetary policy, so it really doesn’t matter which one is appointed Chairman.  But with hawkish Fed President’s Mester and Bullard participating as voters in 2022, the potential exists for the committee to pursue a more restrictive monetary policy.  Especially, if the economy continues to run hot and inflation continues to surprise to the upside, which we believe will be the case.

Under Volker and Greenspan it wasn’t unusual to have dissenting votes and because members of the FOMC rarely gave public speeches they didn’t need to build a case for their position. Bernanke’s time as Fed Chairman was quite different.  He favored open communication and consensus among members even when they disagreed.  Fast forward to the present and the potential for dissention and full communication.  A member that believed the committee was committing a policy error could avoid blame by building a case through public communication.  Should that circumstance come to pass the Fed will have lost even more credibility than they already have.  Stay tuned; The first FOMC meeting of 2022 is January 26!

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