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Please enjoy this complementary piece, run earlier this week, on the changing of the guard at the second-most influential Fed. “It was Monday’s Daily Feather that caused buzz and comment around Wall Street.”
— Art Cashin in Cashin’s Comments


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John Williams is now the second-most powerful leader inside the world’s most powerful central bank. If Jay Powell gets hit with the flu in a few months, it is Williams who directs interest rate policy. Williams has advocated for raising the inflation target off the 2% level they’ve failed to attain forever as it’s an ill-designed metric not meant to rise. Williams also advocated for further bond-buying (a.k.a. Quantitative Easing) and in the event all else fails, forward guidance. Williams’ SF Fed has extensively researched raising the inflation target to coerce a steepening in the yield curve. But is that even do-able? That also builds in higher inflation expectations across the term structure of interest rates, so long-end yields would rise. Raising the inflation target means the Fed doesn’t just tolerate higher prices, it tolerates higher costs and profits. But it falls flat in practice. If firms can’t raise prices, then either costs are cut, profits are squeezed, or companies’ balance sheets weaken due to the reduced cash or added leverage that stems from the higher-cost environment. The issue then becomes a credit problem. La plus ca change does not apply to the New York Federal Reserve’s John Williams. If you’re in the City, drop him a line. Today is his first day on the job since resigning his post as the President of the San Francisco Fed, where he’d been since 2002. New York
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