Fed's Hammack (2026 voter, hawk) says the key piece of information is how high energy prices get to, and how long they remain there for; high energy could bring inflation higher, but it could also hit growth; thinks rates are in a good place
Importance
Level 1
Policy Decisions
- Baseline is staying on hold for a while.
- There are two-way risks for monetary policy.
- Will be watching data
- There are risks Fed could go either way with rates, but base case is to be on hold for some time.
- It is a tough time for monetary policy.
- Normally like to look through supply shocks, supply shocks are tricky for mon pol.
Mandate
- Concerned about both sides of mandate. Job market is in reasonable balance. Fed has been missing inflation target for five years.
- Consumers have been facing extended period of elevated inflation.
- Still persistently missing on inflation target. Sees labour market reasonably in balance.
- Does not see job market as source of inflationary pressure.
- Fed must maintain inflation expectations. Looks reasonably well contained.
- Fed doing best it can do balance the mandate.
AI
- Unclear of AI impact on economy, could boost productivity, it could hit jobs.
Fed independence
- It is very important.
- Fed is independent on policy.
- Fed is focused on doing its job.
Balance sheet
- Has vigorous discussions on balance sheet.
- Looks forward to further debates on balance sheet.
- It is a tool to maintain rate control.
- Reserve demand issues are key to Fed balance sheet size.
- Banks need to demand fewer reserves if you want to reduce size of balance sheet.
- Must strike a balance between reputational benefits and financial stability benefits.