YouSaid · the spoken record

Colby Smith

lines on the record: 61
first: 2023-01-31
most recent: 2023-01-31
sittings or episodes: 1
sources: podcast

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“Has changed at all. But another important thing to note is the Fed doesn't want to come up with this plan B if the government defaults. I think that the more contingency planning is in place, at least publicly, the more concern there is that the impetus for policymakers to come to a deal and lawmakers to come to a deal is just going to lessen. It's sometimes the urgency of a financial collapse and financial markets falling out of bed that forces, I think, people to the negotiating table. So it's kind of a really dicey situation. The Fed definitely does not want to be involved in this at all, but those are some of the kind of ideas that have floated.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“To the military or things like that, that still constitutes not making good on your obligations. The second thing is, and this has been floated in terms of what the Fed can do is do they buy default, do they buy up defaulted securities, let's say? Chair Powell actually has been quite involved in, he was at the Fed when these things, these debt ceiling standoffs have happened in the past. So if you look back to transcripts in 2011 and 2013, you can hear a broader conversation internally at the Fed about what they think they can and should do in the event of a debt ceiling situation. At the time that the Fed buying defaulted securities was brought up, Chair Powell or the governor of Palette at the time called it loathsome. So it's not something that he supports clearly. It'd be interesting to see if that view.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“No, not really. I think it's kind of separate from the whole debt ceiling situation. I mean, the thing with the overnight repo facility is that's eligible banking institutions and other money market funds, things like that, stashing cash, they're kind of overnight, but that's an overnight facility. It's not something that anyone would kind of tap for the purposes of funding the government. Plus, it's only, you know, it's two trillion dollars, but it's overnight kind of overnight dealings. I think what people are more thinking of is what the Treasury can do in terms of prioritizing payments. So do they, you know, focus once we get past X date, do they focus on paying bondholders? So maybe we don't have a technical default, even though that would be really up for debate, I think, with some credit agencies who would say if you're missing payments,”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Is there anything the Federal Reserve can do or the Treasury can do, or market participants can do to sort of unlock the giant well of liquidity that's somewhat trapped in the reserve repo facility? I think, and as you can tell by my hesitation, I'm not an expert in the plumbing at all, but I think there's close to $3 trillion that is in the Federal Reserve's reverse repo. So it's not a deposit facility, but it's basically like a deposit facility. So people just park their funds there. And that rate is, I think, somewhere between the ladder of the lower Fed funds rate and the upper Fed funds rate limit. So that level will change tomorrow. But there's trillions of dollars in there. Can that in any way sort of fund the government and do bills? Is there any sort of extension we can get there or no?”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Bit of time, thankfully until the pressure really builds. We all think about this thing called the X state, which is basically the moment in time after all of the Treasury department's quote unquote extraordinary measures are exhausted. And these are things like ceasing investment in some of their government accounts and things like that in order to carve out a little bit more borrowing capacity. So Cherry Ellen has said that those extraordinary measures will run through June and the expectation is that that X date isn't until later on. That date can move quite a bit. I think the problem is that”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“It will be resolved. I mean, I just don't think that we're necessarily careening towards a default without there being a considerable amount of effort on all sides to kind of avoid that outcome, which we know from Treasury Secretary Yellen and any policymaker, frankly, that that would be absolutely disastrous outcome. But I think the thing with the debt ceiling right now, we have Speaker McCarthy meeting with Biden tomorrow to suss out if there's any kind of deal. The problem is that Biden has said he wants to push forward a clean debt ceiling increase bill, meaning it doesn't have conditions tied to it. Whereas Republicans, they want to pair any increase in the debt ceiling with spending cuts. So there are some real fundamental differences in the way in which people think that they can come to some kind of agreement, but they have a little”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“As is currently, they'd probably have to make some adjustments there as well. So there are a lot of kind of unknowns about QT. I just think the problem is, is that, as I mentioned in my earlier, they're in these different phases with the policy rate, and that's why it's garnered the most attention. But that's not to say that the balance sheet is not going to become the focus once we reach a kind of pause in the tightening cycle. And the Fed is thinking about other ways it can manage the level of restraint it's exerting on the economy.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“When do they potentially make any changes? If they pause rate hikes, do they continue on with balance sheet reduction? And it sounds like from what we've heard from officials that they're comfortable doing that. I think the real unknown is, okay, if they start cutting interest rates, do they cease balance sheet reduction? Because typically the Fed likes its tools to work together and in the same direction. And they don't like tightening on one end and loosening on the other. That's a hard message to communicate. So like that's going to be the big kind of unknown with QT. But I think if you layer on top of everything else that's going on in the US, and I'm thinking specifically about kind of debt ceiling issues, things like that, I mean, if come June, July, they're dealing with the potential U.S. default. I highly doubt that, you know, QT is going to be running.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“So, I think it's a couple of things. I mean, the balance sheet, first and foremost, is not their primary tool. I mean, they said this again and again throughout the process of both providing accommodation and also removing that accommodation that the federal funds rate is their primary lever to exert any kind of pressure or stimulate the economy. So I think they're quite happy that the balance sheet is a secondary kind of consideration for a lot of people. But that's not to say that it's not important. It's an incredibly tightening plans. It's just not something that they are, you know, constantly adjusting and making amendments to in the same way that they're doing with the policy rate on a, you know, every six weeks or so. So I think they're happy that it's kind of running in the background. I think the question, there's a couple of questions there about.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“In throughout 2022, very few questions at the press conference were asked about the balance sheet, relatively very few questions were asked about the balance sheet. Well, I guess let's see during the second half of 2022, because obviously there's the taper and the tightening. Now that quantitative tightening is sort of running in the background, it's kind of tough for people who aren't very involved to know how the Federal Reserve thinks about quantitative tightening. Do you think that the Federal Reserve is happy that quantitative tightening is serving its goals? Do they think they need to do more? Do they think it's causing problems? And also, do you know why the balance sheet is talked about so much less so than rates? Is it just because interest rates is something easier to comprehend and the balance sheet is more theoretical and sort of”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“About the decision about cuts and the bar for that. So that's one way to kind of strengthen the message that they're not going to prematurely reverse course anytime soon. But I mean, when Chair Paul was asked about this at December, he said our focus right now is figuring out how much more we need to do. It's not necessarily about cuts. And they're talking about policy decisions as part of a multi-phase process. And I still think we're so firmly in that first phase, frankly, which is sussing out how far we are from terminal and reaching terminal. The second phase is, okay, how long do we kind of hold at that level? And the third phase is okay. When do we ease back from there? So I just don't think that Powell is going to kind of prejudge. The third phase of that when we're still kind of in the first phase.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Right. I mean, the thing is that I don't think we're going to hear any declarative statement from Powell on a decision that they're going to be making in September or November, let's say, of this year. I mean, there's just too much that could potentially happen for them to say, you know, 100% this is what's going to do come those meetings. What I do think that he's likely to do is to ratify the dot plot delivered in December, which again shows no cuts for 2023. We heard that in the minutes as well. It specifically highlighted no participant thought rate cuts were necessary. We've heard from Fed speakers that they need rates to be elevated for some time. And what could happen is that is cemented and added to the statement because right now there's nothing in the statement that talks about.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“And then if a journalist asks, which it sounds like is likely about rate cuts in the rest of 2023, how likely do you think JPL would be sort of like tie the Fed to the mast of the terminal rate for the entire year and say no cuts? Because the advantage of that is that financial conditions would tighten perhaps tighten significantly. The downside is, of course, you kind of remove Pledge themselves to no rate cuts. And also, you know, I mean, I feel like they already sort of have indicated to it, but it hasn't been a hard pledge, right?”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“And they're not going to prematurely back off of what they've done so far. So I just don't think the tone of the meeting is really going to be all that different than what we've heard in the past. It just doesn't serve them at this point.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“So the expectation is that he's going to lean hawkish, right? I mean, he doesn't want, we're not at the hard part yet, which is what Ellen Meade, who was a former top advisor to the board of governors, said to me recently, the hard decision whether to throw in that extra 25 is just not there yet. No one kind of expects that they're not going to do anything come the March meeting. That's going to be when they have to have maybe a more nuanced conversation about what comes next. But for all intents and purposes, the point of this meeting is to make sure that kind of financial conditions don't ease further. And in order to do that, I think Powell has to kind of pair the downshift to 25. Any statement changes things like that with a pretty stern message that the Fed isn't letting up here. They're not close to being done.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Of the most hawkish people now. He came out right in early January and said that he was one of the Fed officials who thought rates should rise above 5.5%. So there was about seven officials in the last plot who wanted rates not just above 5%, but above 5.4%. And he was one of them. And he's kind of said we can't back off of this too early. you know, the bias for me is to raise rates more after a pause rather than just doing nothing at all or cutting. So on balance, I mean, perhaps it's a little bit more of a dovish fed, but there are some strong hawkish voices in there as well.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Addition to the FOMC. Now Lori Logan is a Fed veteran, but she's played a very different role than what she's currently doing as president of the Dallas Fed. She used to run the Soma, she was the SOMA manager over at the New York Fed. So she was responsible for all things related to market plumbing, financial market liquidity, things like that. But that's been incredibly helpful to hear her insights on kind of the whole QT process and balance sheet reduction and things like that to wrap things up. We have Kashgari, who was once one of the most dovish members of the regional presidents. In terms of removing accommodation after the initial COVID shock. But he's actually emerged as one.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Right. So two of those members are actually quite new to the Fed. So we don't really have years of policy making decision and speeches and things like that to go off of. So Austin Goulsby, you know, he just replaced Charlie Evans over at the Chicago Fed. And I think this is his first meeting of the year. The first, of course, that he's a voting member. And we haven't heard from him in public remarks since taking over that role. But the consensus is that he's leaning on the more Dover side. I mean, he used to be a top Democrat economic advisor to the Obama administration. There are other public statements show that he's kind of quite concerned about the labor market and the employment side of the Fed's mandate. So the view, the initial view is that he is going to be a more dovish.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Then people understanding that they do not want to reverse course and ease by year end. If they ease too prematurely and then suddenly, you know, inflation steadies too elevated of a level that they need to hike again. I mean, that's not something that they want to do either.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“More broadly to back up their calls to indicate that even if they pause, it doesn't mean that they are kind of backing off of their monetary tightening campaign anytime soon, meaning just because they don't price in those cuts or don't think that those cuts are guaranteed by year-end. So in terms of the kind of sequence here, I really do think that last May hike that there is a chance that they don't kind of need to follow through with it. And we heard this from some officials as well, you know, in the intermeeting period. They would love not to have to kind of have to push rates up further than is necessary. They're not going to just plow ahead because that's what they forecasted back in December, you know, that they need to do. But what I do think, so I think that last 25 basis points is less important.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, the thing is that what the Fed is going to say, and I'm sure they're going to be asked this tomorrow, or Powell's going to be asked this tomorrow as well. I mean, he's just going to say it's too far out. I mean, thinking about the May decision, you know, on February 1st is just not going to give them they're not going to have the clarity they need to kind of know that they're going to kind of ratify that move. I think the reason why people have kind of coalesced around this idea that they could be done after March it's because of two things. I mean, the data they say will point to the fact that they can actually pause after doing one more 25 basis point hike. But also they have the tools in place in terms of them being able to issue a dot plot and having the SEP.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Thanks. We talked about the disconnect between what rates are going to be at the end of the year or at the end of 2024 and what the Federal Reserve thinks interest rates will be. But I think the disconnects starts even earlier than that because the market is pricing that the Federal Reserve get to 5% or 4.75% to 5% and the effective rate will be some like 4.9% or somewhere around there because it's in the middle. Whereas as you said only two of the 19 members thinks that the terminal rate will be below 5%. So do you think the Federal Reserve's view will sort of clash with the market? And I guess in particular we're talking about a 25 basis point hike not tomorrow, not in March, but in May, I believe, which would take it to 5.25%.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“I'm paying quite a lot of attention to those metrics because as she noted in her recent speech, that's kind of the lowest bar for companies that are looking to cut their costs or to be a little bit more proactive about preparing for a coming downturn. So if we're starting to see that in those more temporary measures, it could well be the case that that's going to precipitate a larger, more pronounced slowdown in labor demand. So I think things are moving in the right direction and ECI was ratified that view, but I just think that there is this worry that the data is just, it's a little bit premature just to say, you know, things are good and done and dusted.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“It's perhaps premature to say, okay, the Fed has this totally under control. They should pause at the current moment and they should be done raising interest rates and perhaps maybe should be considering easing. I just don't think the data is pointing to that just yet. I would say that in terms of where the Fed needs to go, I think the labor market data is actually most important for them. That's where they expect to see press price pressures, those persistent price pressures, that's where they say they're stemming from. So we've only seen, you know, on the margin some weakening of the labor market. I mean, Lail Brainerd, the vice chair, pointed to the fact that, you know, average, you know, hours for workers are falling temporary help is also falling as well.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“And then they rolled over dramatically in the latter half of 2022 as mortgage rates spiked. But that takes a lot of time to show up in the data. So it's been an important driver of inflation just in most recent prints, but people are expecting, you know, in the next couple months or so for housing to really roll over and that to help bring down inflation as well. But the Fed kind of knows all of this to be true. So they're stripping out those kind of inputs and focusing instead specifically on core services X housing inflation. And that's what they say is the best gauge of underlying inflation. It reflects, you know, the strength of the labor market in particular. So it's not necessarily that those views are flawed. I mean, I do think it's the direction of travel we're moving in. It's just that”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“So, I mean, I think to take a step back, I think in the aggregate, you look at the data. And I think it's hard to point to anything other than the situation being mixed. And that's exactly what John Williams over at the New York Fed said in his final public appearance before the blackout period ahead of this meeting. And essentially, I mean, yes, if you look at the headline figures, great. We see inflation rolling over. But I think what is critical for the Fed in particular is they're looking at they're stripping out a lot of the stuff that they expect to fall. So, you know, they don't want to, they care about energy prices, but they've been descending. So they strip it out of their kind of key measure of underlying inflation. The same is true for housing. So, you know, shelter costs, those rose quite significantly. housing, rent, things like that.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“So it's tough for them to kick. Yeah. So. The employment cost index came in today, I think, 1% quarter over quarter on an annualized rate. So that's, I think, slightly of over four percent. Yeah, now let's turn to the data. What do you think has been the most significant pieces of economic data? There's inflation. And of course, headline CPI has fallen dramatically because of oil, natural gas, as well as other commodity prices. But to what degree is core inflation and particularly wage inflation or wage increases, which some argue isn't key input and very related to inflation have remained sort of resilient. So to what degree would people say, oh my God, inflation has fallen from 9% to 7%, 6%. And therefore, the Fed's pivot is 3% here we come. To what degree is that reasoning somewhat flawed or not flawed? Just incorrect.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Curb card is powered by Hatch Bank, Terms and Conditions Apply. Now let's get back to the interview. Yeah, so I feel like throughout 2022, the Fed said that they're not going to do forward guidance, but I feel like it's a habit that's hard for them to kick. And actually, I was wanted to learn more about the Powell Pivot in very early 2019 in response to the December 2018 FOMC meeting. So I actually was reading Nick from the Wall Street Journal who you sit next to at the press conferences. His stories from December 2018. And in there, they said the Federal Reserve says it's going to no longer do forward guidance four years ago”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“The meeting on the rates on Wednesday morning and before the decision is announced at two. I mean, take today, for example, I mean, we got ECI. I don't think that's dramatically changing the direction of travel for the Fed, but they're taking that number in stock as they kind of decide of course, the quarter point increase, which I think is widely anticipated, but how hard do they lean in the”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Meeting. Yeah, yeah. Yeah, exactly. And, you know, right now we've been getting data releases just the way that the economic calendar operates. We, you know, in December, we got the CPI report on the Tuesday before the rate decision that came in softer than expectations. And, you know, Nick at the Wall Street Journal asks, you know, would you have put the same SEP if you had gotten the CPI a week ago because the assumption is that over the weekend they are coming to grips with how much they're going to do and their forecasts and they're not really changing anything that dramatically but as Powell said then and I think has proven true throughout the year is they're taking in every possible piece of information at their disposal before that you know rate”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's essentially where the rate decision is still kind of up for debate to a certain extent. They don't kind of explicitly know, let's say, or they don't explicitly publicly endorse, let's say, a rate decision. And what was happening over the summer was that, you know, the data was coming in so strong, so unexpectedly strong and so quickly that like incremental data points and I know the Fed says they don't look at one data point, they look at a series, but there were moments in time when, you know, specific data points fundamentally shifted how much, you know, the Fed really thought it needed to do. I mean, that's exactly what happened before the June meeting when they had previously signaled 50 and ended up going with 75. There was that terrible inflation report. There was another report on inflation expectations as well that was on the”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“He was saying, you know, we're not going to do explicit forward guidance anymore. It just doesn't serve the purpose. Now, of course, the big counterpoint there is that, you know, a bunch of Fed speakers come out in the week after that meeting and talk about their views on the outlook. We get the Jackson Hole speech. We get the SCP in September. These are the ways really that I think the Fed can communicate where it's going. I think what's been more notable though, however, about this tightening cycle than past ones is the fact that some of these meetings are more quote-unquote live than I think people, you know, assumed or was”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“So, I mean, the Fed has, as you mentioned, a ton of tools in which it can express its policy views and get its views out there. I think what's notable is that what central banks, not just the central bank in the US, but also the ECB and around the world in July, they kind of said, you know, we're going to back off from forward guidance. We don't want to give these kind of incremental like signals about what we're going to do in our immediate next move. It's gotten them into trouble in the past. I mean, we saw that with Chair Powell just over the early, late spring, early summer. He says 75 is not being considered. We go to 75 in June. He says, you know, he doesn't expect this to be a normal process. We have four of them. I mean, it just became, you know, just a losing game, really, to kind of prejudge the meeting. So come July.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Can you talk about the process of forward guidance, name of the show, the feds transmission of its policy to let the market know what it is planning so that the market can tighten and or loosen financial conditions without the Federal Reserve having to actually do it? And there's the FOMC statement, there's the press conference, what Jay Palace says. There are the speeches of Federal Reserve officials. There's economic data and market participants guessing about how the Fed is going to react to that. And then there's also journalists who report on the Federal Reserve in some cases perhaps like sort of leak what the Federal Reserve is indicating. I'm particularly curious in sort of when journalists has a scoop and that scoop sort of moves markets.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Committee is really leaning here, and I think that's why anytime anyone prices in or wagers that the Fed is going to kind of disappoint or rather back off of their more hawkish stance, I kind of think back to that moment and realize that the Fed thinks it can deal with overtightening more than it can deal with undertighting. So it's better to assume that, you know, that's where they're going to lean.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“That they were approaching this situation quite seriously. And I think that one moment in particular, I think this was maybe back in the September meeting, there was kind of a question on overtightening versus undertightening fears. That's something that's come up in the minutes quite a lot as well. And, you know, at that point, the Fed has been much more concerned about underdoing it, so not tightening rates enough and letting inflation kind of get out of control, leading to an unanchoring of inflation expectations versus overdoing it. And Powell said something along the lines of, well, we know how to kind of deal with a set of circumstances when we overdo it. We can just cut interest rates. It's a much more difficult situation for us to deal with if we let inflation kind of get out of control. So that was kind of an important tell as to, you know, which way”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“I don't know. I don't know if there's been any gotcha questions, but I think anytime Powell is been asked about the Fed's reaction function or how it's taking in new data, it's always informative for people tuning in here. And I think what has been notable is that they're also kind of sussing this out at the same way that we all are taking in the incremental data in the intermeeting period and really kind of assessing where things are. I think that what people kind of perhaps underestimated was just their level of kind of resolve and how quickly they would kind of get going when they really needed to. And I just remember back in the kind of June to July meetings when people were really questioning them about how fast to go, it became quite obvious.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“To keep up with what the Fed is dishing out in terms of, you know, how quickly they're moving policy. And they got a lot of flack for moving slowly initially, especially with the taper and readying for that first interest rate hike. But ever since they”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“But this time around, it was like we need to go. We're late on inflation. And, you know, there's no point in delaying. And I think if you look at kind of where we were back in March to where we are now, even in the December dot plot, what's so fascinating is that we maybe reached finally reached the point where the dot plot isn't going to be revised higher from here, if anything, it's going to be revised lower. And that's a completely different set of circumstances than the past nine months before that because every time it got that dot plot, that line was moving higher and the inflation line was kind of still staying too elevated and the unemployment expectation was moving up too. So I think there's just been this big sense of the Fed has kind of finally caught up to where it needs to be. And in terms of the vibe of the room, I mean, I think all of us are just trying.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“And then over the summer, we had this kind of debate of do they even go for 100 when we got some of those terrible inflation reports? I remember the CPI coming in at around 9.1% on a year-over-year basis. And everyone is suddenly like 75% isn't going to cut it. They just need to get to a higher level and get there quickly. So the sense of kind of drama and intensity definitely increased significantly over the course of the year. And I think something that's an interesting thing to remember is back in March right before the meeting and the rate decision, it was when Russia invaded Ukraine. And usually in periods of very significant geopolitical uncertainty, you know, the Fed tends to kind of hold back. It goes a little bit more slowly. Maybe pauses to take stock of the economic ramifications of something like this.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“I mean, we definitely did not get a status in March that this is how excessive that the Fed was going to be in terms of raising borrowing costs. I mean, even if you look at the dot plot, the expectations for the rates by year end in 2022 or even 2023 were vastly different than where we are now. And I think at the time, once we got to the May meeting and the Fed had increased rates by 50 basis points, we were hearing that, you know, okay, maybe a couple more 50 basis points would be in play. There was no kind of talk about 75. And I think at the May meeting when he was asked, you know, he said 75 was perhaps, you know, not on the table at the current moment. Of course, come June. They're doing 75s and they've dramatically increased, you know, the dots in the dot plot.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, I mean, the threshold, I think, for pain is a lot higher here when they're dealing with, you know, an inflation shock as big as the one that we're currently in at the moment. Governor Waller, this was actually a couple months back, but had an interesting point that the Fed doesn't really face a trade-off in terms of fighting inflation until the unemployment rate is somewhere around 5%. I mean, we're at three and a half. I mean, that's a significant jump from here. And most economists say a full percentage point increase in the unemployment rate, that very much dictates a recession. But ultimately, Governor Waller, I think has it right that that's kind of like the pain threshold when they start to have to think a little bit more about the employment side of their mandate rather than just being so chiefly focused on the inflation, getting inflation down.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. And I would say there's a disconnect between the bond market and the stock market because the stock market is forecasting a soft landing and that earnings will grow modestly, but not decline, whereas the forward race curve is forecasting cuts. In my book, I think the only situation in which the Federal Reserve would cut is a pretty severe recession that takes the federal reserve by surprise. I have a hard time seeing the unemployment rate staying below 4% and the soft landing and the Federal Reserve cutting interest rates just because they want to help the stock market out. Do you have a similar read or a different read?”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“IMF too. There's a lot of fears of a more fragmented global economy, one where there's less globalization, there are more trade disputes, there are a number of supply related issues that could rev up. And so in that environment where there could be more consistent price pressures, does it make sense in an environment where there is a quote-unquote soft landing in the US for the Fed to really be cutting interest rates? So those are just a couple of factors I think that people are going to be thinking about, but there's definitely this disconnect the Fed has to grapple with.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“The economy is going to evolve over the next 12 months or so. And then second to that, I think there's also a miscommunication or a misperception rather about the Fed's reaction function. Easing cycle might look different than it has in the past. But I think fundamentally, there's a lot of time between now and the end of the year. And the Fed has said consistently that their data depended. Right now, it just doesn't serve them to say anything other than they're going to keep rates elevated for an extended period of time, so much so that some people even think they're going to add that to the statement this time around, that rates need to be kind of restrictive for some time in order to get inflation down. But, you know, a lot could change in the next couple months or so, obviously, if the data turn more notably. But I think for right now where it stands, it just doesn't make sense for them to acknowledge that they would even remotely be open to cuts at any point. And the last point on this, and from speaking to some academic economists as well, there's a lot of fears, and we hear this from”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“So, there are two narratives going on here. I think the first is either you think that the Fed is going to over tighten and push down demand excessively, cool the economy too much, and that's going to lead to a recession. And that's why there's such substantive cuts priced in basically from end 2023 onwards. But another narrative that I've also heard is that the inflation forecasts and expectations are just a lot more benign than what, you know, the Fed currently thinks. We heard that from Governor Waller. He said, you know, markets think that inflation is just going to go, you know, drop like a stone. It's going to be pretty painless. And we're going to not have to be as restrictive as possible. And, you know, his point of view is I really don't think that that's the way things are going to play out. So there seems to be kind of a fundamental disconnect between both, you know, the way in which”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Right, and a lot of these loosen financial conditions have to do with the forward cuts that are priced in. You mentioned two cuts priced in for just this year for ending on December 2023. And I think up to seven cuts by the end of December 2024, the Federal Reserve's line is we are not even thinking about cutting interest rates this year. However, in the summary of economic projections, they do show a somewhat moderation in 24 and 25. And actually, I think you had an excellent question in the September FOMC meeting where you asked about how, in the summary of economic projections in September, core inflation by the Fed was projected to decline. However, there was rate cuts in the dot plot. So it's sort of a, the Fed is having its Fed's own curve is somewhat inverted. Do you think that that”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“and of such a great magnitude as let's say the rally in some risky assets or the narrowing of credit spreads and things like that. But at the end of the day, you look at mortgage rates and they're about a full percentage point lower than they were in the fall. And that's not something necessarily the Fed really wants to see if they're trying to tame demand, especially in the housing sector. And if you look at kind of new home sales and things like that, economists that follow this, they say, you know, it looks like they kind of bottomed out at the end of the year and they're starting to kind of firm a little bit. And that's not perhaps necessarily something you want to see if the overall direction of travel you want inflation to go is down.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think it has to be asked whether it's by me or not, but I think it will be. And that's just because the Fed has highlighted this as an important tool for them in terms of making sure that they're on the way to getting inflation back down to 2%. So at this point, if in December they're talking about an unwarranted easing of financial conditions, well, financial conditions have only loosened more since that point. So if they're worried about it in December, it only is natural that there would be some concern that that level of attention on these moves increases as well. I think one important caveat is that the Fed typically pays closest attention to mortgage rates. Those have perhaps not fallen as significantly or have the dissent, I guess, in mortgage rates has not been as”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT
“Right, so financial conditions, part of the financial conditions index is risk-free interest rates, which on the short end the Federal Reserve has ostensibly complete control of. But then there's also the dollar, there's credit spreads, and there's equity valuations. And we've been in a pretty risk-on mood with stocks going up, credit spreads narrowing, and the dollar having weakened. And actually, I think the S&P 500 is higher now than it was the day that the Federal Reserve did its first 75 basis point hike in June, which is pretty remarkable to me. And actually, the disconnect between the hawkishness of the Federal Reserve and the optimism of markets, particularly pricing in those forward cuts in the future, which is very interesting, that was of such a note to journalists that actually it was in the December FOMC, the first question was about that disconnect between financial conditions.”
2023-01-31 · Forward Guidance · What This Fed Watcher Is On The Lookout For | Colby Smith (February 2023 FOMC) · IDENTIFIED FROM THE TRANSCRIPT