Fed officials seem to have ‘no idea’ about inflation, strategist says

The Marriner S. Eccles Federal Reserve building during a renovation in Washington, DC, US, on Tuesday, Oct. 24, 2023.

Valerie Plesch | Bloomberg | Getty Images

Federal Reserve officials appear to have “no idea” what is happening when it comes to the inflation picture in the U.S., according to Julian Howard, lead investment director of multi-asset solutions at GAM.

His comments come as policymakers have in recent weeks been urging patience over interest rate cuts, arguing that inflation has fallen by less than previously expected and is still too sticky for the Fed to press ahead with easing monetary policy.

“I think the message that’s coming through is that they have no idea what’s going on,” Howard said on CNBC’s “Squawk Box Europe” on Wednesday.

Federal Reserve officials seem to 'have no idea what's going on,' strategist says

The Fed did not immediately respond to a CNBC request for comment.

Fed Governor Christopher Waller on Tuesday said that he needed to see further data evidence that inflation was softening before supporting rate cuts.

“In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy,” he said at an event at the Peterson Institute for International Economics in Washington.

Waller’s comments were echoed by other Fed officials on Tuesday, including Boston Fed President Susan Collins.

“I think the data has been very mixed … and it’s going to take longer than I had previously thought,” she said at a conference hosted by the Atlanta Federal Reserve. “We’re in a period when patience really matters.”

‘A credibility problem’

Fed Governor Christopher Waller: Don't think we are going to need to raise rates

“Inflation did start coming down but then it seems to have just got stuck at around 3.5% and everyone is trying, is struggling to find a narrative to why’s it got stuck at 3.5% and I think that’s, that’s the challenge,” GAM’s Howard said.

He added that stock markets appear to be handling the elevated inflation levels and have also adjusted their expectations for interest rate cuts to now price in far fewer than earlier in the year.

Howard attributes the subdued reaction from markets to changes among mega-cap stocks. Those companies currently have high cash levels, which can be invested relatively risk-free, for example in short-term Treasury bills, he explained.

“They’ve become this sort of all-weather type structure at the top of the market,” Howard said. “If rates come down, it’s great for the revenue. … If rates go up, or they don’t come down as expected, it doesn’t matter because [of] the cash level, the cash levels mean that they’re making this huge amount of money on an annual basis risk-free.”

The Fed is managing inflation 'extraordinarily well', says Jefferies' David Zervos

Source link