Powell was confirmed for a second term as Fed Chair on May 12th. His nomination was held up for months in the Senate. Powell’s confirmation will provide him with temporary courage – enough to talk in a hawkish manner, enough to take the Fed Funds Rate to 2% by summer’s end – but not enough to curb inflation.
Recall that Powell has veto power over other FOMC members now that he has been confirmed. Given Powell’s recent confirmation, we expect him to puff out his chest and increase his hawkish rhetoric over the course of the summer. 50 basis point increases in the Fed Funds Rate will be the flavor of the day for the foreseeable future. More important to the Fed’s Quantitative Tightening (“QT”), effort in our view will be the pace at which the Fed reduces its Balance Sheet of Treasuries and Government Agency securities. Our view is that the U.S. is in a recession now as the consumer exercises caution (also consider recent remarks from Amazon, Target and Snap). Given this macro backdrop, it will be difficult for the Fed to tighten beyond the next two or three FOMC meetings, especially where we believe the Q2 GDP figure will show that we have been in a recession for months.