Weekend Reading: Claire Berlinski: Post-WWII Western Europe
Announcing the John Bell Hood-Max von Gallwitz Society!

Tim Duy: Powell Wants to Create Some Mystery Around Fed Meetings: "A slower or faster pace of rate hikes, an extended pause, or even a cut are all possibilities at this point...

...The Fed is preparing for a shift in their policy guidance. Why prepare for a shift? Policy rates will soon approach the central tendency range of what policy makers estimate to be neutral, currently 2.8 percent to 3.0 percent. But that range is just an estimate. The true neutral rate is unobservable. Hence, as rates approach that range, policy makers need to more carefully assess the current and expected state of the economy before blindly pushing rates higher. They could afford to be on autopilot when rates were far from neutral; they will soon no longer have that luxury.

My view is that the next two rates hikes are looking like a near certainty at this point. The economy exhibits too little inflation to consider accelerating the pace of rate hikes with an August hike and retains too much momentum for the Fed to consider pausing at the September meeting. Moreover, I doubt this calculus will change by fourth quarter, meaning a hike in December but not October. By 2019, however, the guidance will shift away from an implicit expectation of a 25-basis-point boost each quarter. Officials will increasingly emphasize the role of incoming data when setting policy. In his testimony, Powell provided a clue on what to look for when sifting through the data.... The Fed is not likely to believe they have reached a neutral policy stance as long as the labor market is sufficiently strong to place ongoing downward pressure on unemployment. As such, the Fed would continue pushing policy rates higher while searching for neutral. Do not underestimate the Fed’s determination on this point...