George Strikes A Balanced Tone For Size Of Further Hikes

KC Fed’s George (’22 voter), a 50bp dissenter at the June but not July FOMC, offers a balanced, open tone behind how much further the hiking cycle will go.

• July CPI was encouraging but too soon for a victory lap, the case for continuing to raise rates remains strong whilst continuing to debate how fast to hike. It’s not clear where the stopping point for rate hikes will be, but the Fed will need to be "completely convinced" inflation is coming down.
• The easing in financial conditions may have been based on optimism that Fed would slow down, but does not reflect how Fed is thinking about policy, but in a more dovish remark she notes the Fed has done a lot and must be mindful that policy acts with a lag whilst inflation expectations look to be pretty well anchored.
• Labor market commentary remains hawkish: it will take a while for tightness in the labor market to ease with businesses reporting they are still under pressure to raise wages to hire and falling productivity – which is currently seen as “abysmal” – makes the Fed’s job harder.