First Powell Rate Hike Coming

Get ready for the first Fed rate hike of 2018. Newly minted Fed Chair Jerome Powell will preside over this week’s two-day meeting, where officials will also release their updated economic projections and future rate hikes. Analysts at Capital Economics believe that Fed “consensus is shifting from three to four rate hikes this year.”

After the release of the decision and the projections, Powell will conduct his first, post-meeting news conference, where he will likely underscore the strength in the labor market and in the overall economy. In turn, reporters will ask the Fed Chair how the central bank plans to address potential price pressures building in the system. In three-month annualized terms, core CPI inflation reached a decade-high in February, though inflation continues to remain stubbornly low.

Meanwhile, the Fed itself is operating short-handed. There are still four vacancies on the Federal Reserve Board, which leaves three members: Chairman Powell, Vice Chair Randal K. Quarles and Lael Brainard. President Trump has nominated Carnegie Mellon University Professor (and inflation hawk) Marvin Goodfriend to fill a slot. While the monetary economist narrowly passed the Senate Banking Committee, his ability to clear a full Senate vote is in doubt.

Some other names being floated to fill the Fed openings include: Richard Clarida of PIMCO, Mohamed El-Erian of Allianz and John Williams of the San Francisco Fed. One problem that could gum up the process: now-former director of the White House National Economic Council Gary Cohn was leading the search effort. His resignation could delay the nominations even longer.

Cohn’s replacement, CNBC commentator and former Reagan White House budget staffer Larry Kudlow, will now have to get up to speed. While the President said that Kudlow is “a very, very talented man,” analysts are dubious of his abilities to read the economy. In June 2005, Kudlow wrote that the booming housing market would continue, calling those who predicted a housing-price crashes “BUBBLE-HEADS”. The market slide began the following year.

Then in December 2007, Kudlow proclaimed, “There’s no recession coming. It’s not going to happen.” The NBER’s Business Cycle Dating Committee said the official start of the recession was in that very month when Kudlow made those predictions.