- The Fed is prepared to take stronger action if inflation and inflation expectations suggest the need
- Combined impact of rate hikes and balance sheet reduction will bring policy to a more-neutral position later this year
- After policy is more neutral, extent of additional tightening depends on the evolving outlook
- Fed will tighten 'methodically' through a series of rate hikes
- War and covid lockdowns in China likely to extend supply chain bottlenecks and hurt growth
- I am watching yield curve and other data for suggests of increased downside risks to economy
- I am carefully monitoring rotation from demand for goods back to services and whether that occurs without sparking inflation
- Expects balance sheet to shrink significantly faster than the last cycle
- Most low wage workers have seen wage growth that exceeds avg inflation
There's a dichotomy here between 'stronger action' and 'methodically'. The first sounds like 50 bps while the second sounds like steady 25 bps hikes.
The stock market has slumped and the US dollar climbed since these comments, with the market more focused on the talk of 'stronger action.' I'm not sure that's the right take but the Nasdaq was vulnerable. Yields in the belly of the US Treasury curve have also risen by a couple basis points.