Fed chat of last week and this week's updates - Banks

Analysts at UOB noted previous Fed chat of last week.

Key Quotes:

"FOMC Vice Chair Fischer on 5 May issued a strong defense of the US central bank’s decision not to follow a mathematical rule when deciding monetary policy as Republicans in Congress renew efforts to curb the current consensus-based approach. Fischer noted that the rate-setting committee has strengths policy rules lack and that the FOMC has an efficient way to aggregate wide variety of information and perspectives. 

San Francisco Fed President Williams (non-voter) (5 May) supports the FOMC shedding bonds later this year to get policy back to more normal levels. He noted that the US labor market may be a bit lower than natural rate of unemployment and that the April jobs report ‘good data’. On the size of the Fed’s balance sheet, he sees a ‘significantly’ smaller balance sheet once down to normal levels. He also opined that the Fed should ‘very seriously’ consider adopting inflation pricelevel targeting. 

Chicago Fed President, Charles Evans (5 May) when asked what keeps him up at night, he says it is the possibility of rates returning to zero that worries him. While he thinks that the Fed needs to have capability to do QE, he thinks it is best to avoid need for it by getting stronger economy. St Louis Fed President, James Bullard (non-voter in 2017 FOMC) opined that the Fed’s balance sheet can shrink to as low as US$2 trillion (from current US$4.5trillion). 

He noted that it is odd that Fed is raising short-term rates but not shrinking balance sheet and that the Fed has delayed too long on trimming balance sheet. Fed President Rosengren (non-voter) also opined that his preference is to reduce balance sheet gradually and relatively soon."

For the latest updates from Fed officials, see here:

• NY Fed: Inflation expectations decline and employment prospects brighten
• Fed's Bullard: Continued rate hikes not justified by data
• Fed's Bullard: The policy rate is approximately at an appropriate setting today
• Fed's Mester: Reached employment goals, nearing 2% inflation target - RTRS