Hawkish & UncertainApril 27, 2023
Yesterday JP Morgan introduced a new model to quantify the last 20 years of Federal Reserve statements and speeches. While we aren’t privy to the details of the AI model, we will just assume that the model properly captures dovish and hawkish language.
Based on Fed speeches, the Fed swung from the most dovish on record in 2020 to the most hawkish in 2022. If there is any good news here, it is that the hawkish readings in statements appear to have peaked while the hawkish tilt in speeches has rolled over.
This stabilization, to rolling over, in the Fed hawkish reading probably has a lot to do with the uncertainty of the economic environment expressed by Fed officials. In the chart below, from the March meeting, almost every member was uncertain as to future GDP, inflation and unemployment.
It is a bit ironic that the Fed’s uncertainty shot to peak levels in 2020 just when the Fed was max dovish according to JP Morgan’s model. After undertaking the fastest rate hiking cycle in modern history, it is a bit surprising that the Fed is still so uncertain about all economic variables.