Interesting Fed Speech today
Fed Speech Today - Mary C Daly
This and other forward guidance provided throughout that fall had an immediate impact. Almost overnight, financial conditions tightened. Market participants began pricing in expected future rate hikes, and businesses and households started readying themselves for a new interest rate landscape, pulling forward real estate purchases, restructuring debt obligations, and locking in longer-term fixed-rate loans. In other words, before we ever raised the federal funds rate, tighter financial conditions were already working their way through the system (Figure 1). Indeed, by the time of the first official rate hike of 25 basis points in March 2022, mortgage interest rates had risen three-quarters of a percentage point and broader financial conditions had tightened almost a full percentage point.
A more comprehensive way to gauge the actual level of tightening is to look at financial market conditions.10 Several researchers have done this and found that the level of financial tightening in the economy is much higher than what the funds rate tells us. As the figure shows, this has been true for a while now (Figure 2). In fact today, while the funds rate is between 3.75 and 4 percent, financial markets are acting like it is around 6 percent.
As we make decisions about further rate adjustments, it will be important to remain conscious of this gap between the federal funds rate and the tightening in financial markets. Ignoring it raises the chances of tightening too much.
While resolute and mindful are not in conflict, there is a tension. And that’s what we want in policymaking.
We want to go far enough that we get the job done. That’s the resolute part. But not so far that we overdo it. And that’s the mindful part.
So, we will march unwaveringly toward our goals. Resolute and mindful, until the job is fully done
IMO she is sounding a little more dovish at this point. Kinda like ahead of where we are In lower inflation.
