The winter, and spring, of Fed's discontent

Frustration is the name of the game for the Federal Reserve this year. First, it was the markets, which stubbornly ignored policymakers’ projection for three quarter-point hikes this year by expecting as many as seven. Then came inflation’s stubborn refusal to continue to decline. The statement from the Federal Open Market Committee (FOMC) meeting earlier in the month reflected the dissatisfaction: “In recent months, there has been a lack of further progress toward the Committee's 2% inflation objective.” Chair Jerome Powell elaborated in his press conference, saying the Fed needs more confidence price pressures are alleviating.

What about the rest of the FOMC? Last week brought many of them venues to discuss policy in a series of speeches and appearances, and they seconded Powell’s hesitancy. The influential president of the New York Fed, John Williams, said “we still have a ways to go on the journey to sustained 2% inflation." He asserted the restoring price stability could happen in the context of a strong economy and labor market. Another theme was that the current fed funds target range of 5.25-5.50% likely is restrictive enough in terms of the Y axis, for its level, but not the X axis, of time spent there. Minneapolis Fed President Neel Kashkari anticipates rates will have to sit in the current range for “an extended period” and San Francisco Fed President Mary Daly said it may take “more time” for inflation to decline. Richmond Fed President Thomas Barkin was “optimistic” we still will see rate cuts this year, but that inflation is, yes, stubborn.

The Fed will have additional CPI, PCE and PPI reports before its next FOMC meeting in June. The question will be if those provide the confidence officials need or frustrate them further.