Help Wanted?
As if the Fed’s job wasn’t challenging enough in the current environment, it will be meeting this week with candidates for three vacant Governor seats. Congress has yet to confirm the five Fed nominations, including Chair Pro Tempore Jerome Powell and Vice Chair Lael Brainard. Powell and Brainard will still be able to vote (while their respective terms have ended, they are able to stay on the Board until the positions are replaced) and the exclusion of three regular voting members shouldn’t be disruptive. Nonetheless, three fewer voters (and thus fewer opinions on the Committee) likely couldn’t come at a worse time as the Fed is dealing with stubbornly elevated consumer price pressures.
Conclusion
The job of a central banker is never an easy one but given all the uncertainty in the world, their jobs have become much more challenging. The situation in Eastern Europe is certainly adding to the uncertain inflation dynamics and global growth prospects, but one of the main mandates of the Federal Reserve is also price stability. As such, we think the Fed is going to have to scale back monetary accommodation to try and arrest stubbornly high price pressures. We expect the Fed will kick off a series of interest rate hikes this week with a 25 basis point increase in the fed funds rate. But the path of policy normalization will be “data dependent” and much more measured than the pace of inflation would suggest.
Lawrence Gillum is a fixed income strategist at LPL Financial. Ryan Detrick is chief market strategist at LPL Financial.