Originally published as part of The Outlook Newsletter
Vol. 1, Issue 1C
On paying the inevitable price for years of stimulus:
"…One principle that I've learned in life is that there are "no free lunches." The greater the lunch - the greater the price to be paid. The past several years of fiscal and monetary stimulus wasn't just a lunch for America; it was a feast. We gorged ourselves on the trillions of dollars of stimulus, and that stimulus effectively grew the economy into a beast that demanded to be fed - thus the highest inflation in four decades. The Fed's job is to put the beast back in the cage before it's too big to fit through the cage door…"
"[Now] the Fed can't afford a collapse of confidence in the banking system in the middle of trying to cage the beast. Paul Volker took extreme actions to cage the beast four decades ago. He succeeded in doing so, but there was a price to be paid - a heavy price. This Fed is trying to find that middle ground, but it isn’t easy. There will be rough spots, and there will likely be good times. But ultimately, the job needs to get done.
From Perspective: Morning Commentary for March 28
Director – Global
On market participants hoping for a cut in rates later in 2023:
"The recession-and-disinflation crowd is the 2023 version of "team transitory". These economic Cassandras have underestimated the resilience of the US consumer, the tightness of the labor market, and the structural drivers of inflation for three years. A collapse in commodity prices is the last hope for a dovish pivot, but inflation expectations have recently decoupled from oil prices as higher prices have become entrenched in wage negotiations and expectations."
From "Powell’s Trident" Intelligent Quant - March 2023
Vice President –
On the March CPI and prospects for a May hike:
"Inflation is coming down, but the victory speech from the Fed is not here yet. Core inflation and services inflation excluding shelter, the two metrics Powell is watching closely to determine how sticky wage pressures are having on demand inflation, are still 3x higher than the Fed's goal. This report, in conjunction with last week's strong jobs report, puts a hike in May front and center."
From USD Rates Commentary April 13