Words of Caution from Fed Official; Months to Go Before Ukrainian Talks
Author: Greg Valliere
October 11, 2022
TO BE SURE, there are fresh reasons to worry about of inflation:
* Oil workers have gone on strike in Iran, as an uprising in that country spreads beyond campuses.
* Next year’s Social Security Cost of Living Adjustment, due out this Thursday, is expected to be set at an astonishing 8.7% for 2023.
* And the very generous railroad worker contract has been rejected by one of the largest rail unions, reviving the threat of a strike.
YET BRAINARD SAID YESTERDAY that there are some reasons to expect inflation to begin cooling, and she cautioned that further aggressive rate hikes could have unintended consequences. It’s too early to tell, she indicated, what all this hiking will do — “The moderation in demand due to monetary policy tightening is only partly realized so far.”
IF THIS THURSDAY’S CPI REPORT shows some softening, we think the debate at the Nov. 1-2 FOMC meeting could focus on whether to raise rates by 50 or 75 basis points; the latter probably will prevail, but the stage could be set for a deceleration of the hikes — a possible 50 basis point move on Dec. 13-14 and perhaps a 25 point hike in January.
BRAINARD AT LEAST is raising the possibility that the Fed could over-do the restraint; Chicago Fed President Charles Evans, while favoring aggressive policies now, also cautioned yesterday against over-doing it.
ANOTHER CONCERN FROM BRAINARD: Recent revisions to household income data show consumers might have less of a savings buffer than previously thought, and she also cited rapid rate increases by central banks across the world.
THIS COULD INCREASE the risks of financial instability. she said, as businesses and financial institutions adjust to higher interest rates. “Liquidity is a little fragile in core markets,” she said.
* * * * *
THE EXTRAORDINARY ESCALATION of the Ukraine war has dashed hopes for any negotiations, probably for months to come. Vladimir Putin needs to impress Russian hawks that he’s still determined to win; the Ukrainian people are virtually unanimous in their opposition to a truce, according to Washington Post columnist David Ignatius, just back from Ukraine.
THE FOCUS WILL SHIFT TO MORE ARMS SHIPMENTS as G-7 leaders meet today to consider fresh aid to Kyiv. Ukraine’s priority items include the Patriot surface to air missile system, MIM-23 Hawk missiles, attack drones and NASAMS (National Advance Surface-to-Air Missile Systems) as well as Israeli air defense systems.
THE GAME-CHANGER, IN OUR OPINION, is the sorry state of Russian troops, poorly supplied and unwilling to die for Putin. With nearly 100,000 Russians killed or wounded, morale is at rock-bottom.
NO MATTER HOW MANY missiles Putin lobs into Ukraine, he continues to grossly miscalculate; use of a tactical nuclear weapon would drive China and India away from him, virtually isolating Russia from the rest of the world. Putin has lost this war — but it may be next spring before he (or his successor) cuts a deal.
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