The event was moved to virtual-only due to snow in Washington.
- Changes in policy path must be 'carefully calibrated' and 'not rushed'
- I am more confident that we are within striking distance of achieving sustainable 2% inflation
- We are close but I will need more info in coming months to be sure
- I view risks to Fed's mandates as more closely balanced
- Fed will be able to cut rates this year as long as inflation doesn't rebound or stay high
- This view is consistent with Fed projections for three 25 bps cuts in 2024
- Timing and actual number of cuts will depend on data
- Economic activity has moderated
- Setting of policy needs to proceed with more caution to avoid over-tightening
- Financial conditions remain restrictive
- Highlights signs that the labor market continues to come into better balance
- Data on job openings indicates ongoing moderation in labor demand
- Full text
The initial reaction is hawkish with USD/JPY rising to the highs of the day and stocks falling slightly. US 2s have jumped to 4.24% from 4.175%. Waller will have a Q&A afterwards.
I don't agree with the market reaction. For instance, he makes a direct pushback to the latest strong jobs report.
Turning to the labor market, over the course of 2023, there have been increases in labor supply amid slowing demand for labor, and I expect this to continue to bring the labor market into better balance. Some have seen the latest jobs report as in conflict with this story, so let me explain why I don't see it that way. The short version is that I see the surprises in the December jobs report as largely noise against a trend of ongoing moderation that supports progress toward 2 percent inflation.
The unemployment rate in December held steady at 3.7 percent while employers added 216,000 jobs, which was more than expected and an increase from the 173,000 created in November and 105,000 in October. While that looks like a modest acceleration in job creation, I remind myself that revisions to monthly payrolls have been downward for most of 2023—from the first to the third estimate employment gains were revised down in 9 of 10 job reports. Given this recent history of revisions, there is a good chance December will be revised down. Furthermore, with growth expectations moderating over coming quarters, employment gains are likely to slow. We can see that this is already happening if we look at progress over the previous quarters. Average monthly payroll gains over the fourth quarter were 165,000, a step down from the 221,000 average in the third quarter and 257,000 in the first half of 2023. This data shows an improving balance between labor supply and demand.
Is this hawkish?
Combined with the data in hand on economic and financial conditions and my outlook has made me more confident than I have been since 2021 that inflation is on a path to 2 percent
I don't think so.
Looking ahead, he said "one piece of data I will be watching closely is the scheduled revisions to CPI inflation due next month."
