No sign of a Fed pivot

Two Fed speakers on the docket today: Chair Jerome Powell speaking in Sweden on central bank independence, and Governor Michelle Bowman speaking in Florida on a range of topics, including the outlook for monetary policy. For once, it's the less senior speaker, Ms Bowman, who is the first incumbent of the "community" seat on the Fed's board,  that we need to focus on. 

Ms Bowman is emphatic that the Fed has more work to do to get inflation back to an acceptable level: 

In recent months, we've seen a decline in some measures of inflation but we have a lot more work to do, so I expect the FOMC will continue raising interest rates to tighten monetary policy, as we stated after our December meeting......

I will be looking for compelling signs that inflation has peaked and for more consistent indications that inflation is on a downward path, in determining both the appropriate size of future rate increases and the level at which the federal funds rate is sufficiently restrictive. I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time in order to restore price stability, which will in turn help to create conditions that support a sustainably strong labor market. 

At the same time she is optimistic, based on the resilience of the employment market, that the Fed can get inflation lower without causing a "significant" economic slowdown:

.....unemployment has remained low as we have tightened monetary policy and made progress in lowering inflation. I take this as a hopeful sign that we can succeed in lowering inflation without a significant economic downturn. It is likely that as a part of this process, labor markets will soften somewhat before we bring inflation back to our 2 percent goal. While the effects of monetary policy tightening on the job market have generally been limited so far, slowing the economy will likely mean that job creation also slows. And if there are unforeseen shocks to the economy, growth may slow further.

There is nothing especially new here, and certainly nothing whatsoever to suggest that the hoped-for pivot in policy is anywhere close. The part of the Fed's analysis that is becoming harder to grasp with each passing week is this: just what would constitute the "compelling signs" and "consistent indications" that Ms Bowman and her colleagues are looking for to indicate that tightening has gone far enough?  Headline CPI peaked as long ago as the second quarter of 2022, and in recent months the running rate of inflation (as opposed to the highly misleading year-on-year rate) has moved closer to the 2 percent target.   

Chair Powell has occasionally acknowledged that monetary policy operates with significant lags, but Ms Bowman's remarks seem to show that to be rhetoric rather than an indication of future policy moves. The only question regarding the outcome of the next FOMC meeting (January 31 - February 1) seems to be whether the Fed hikes by 25 or 50 basis points. There's a good case to be made for a pause in tightening, but it seems unlikely to get much of a hearing.