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Ex-Fed New York President Dudley says the Fed is fighting the last war on inflation

Says excess dovishness at the Federal Open Market Committee increases the risk of a major policy error at the Fed.

Bill Dudley is a past resident of the Federal Reserve Bank of New York (2009 to 2018) and is now at Princeton University’s Center for Economic Policy Studies.
Says Fed officials:
  • anticipate that inflation will fall back close to 2% in 2022 … even as supply chain disruptions, energy costs and rising rents threaten to make the current price surge bigger and longer lasting than expected. 
  • And they expect inflation to keep decelerating in 2023 and 2024
  • if inflation proves more persistent than anticipated and even accelerates as the economy pushes beyond full employment, they’ll have to tighten much more aggressively than they expect. 
  • The result could more resemble what happened from 2004 to 2006 – when the Fed raised its short-term interest-rate target by 4.25 percentage points, to 5.25% from 1%, with quarter-percentage-point increases in 17 consecutive policy-making meetings – than what they currently have pencilled in. 
Here is the link to the Bloomberg piece (may be gated)  for much more.
Dudley, Yellen and Fischer, all since departed from the Fed:
Says excess dovishness at the Federal Open Market Committee increases the risk of a major policy error at the Fed. 

China media highlight “signs of better communication between the world’s two biggest economies”

Via Caixin this report on the meeting in Switzerland between China’s top diplomat Yang Jiechi snd U.S. National Security Adviser Jake Sullivan.

The meeting was held on Wednesday

Says Caixin:

  • the latest sign of improved communication between Beijing and Washington. 
  • The two sides discussed areas where the U.S. and the China have an interest in working together to address vital transnational challenges, and ways to manage risks in bilateral relationship, according to a readout published by the White House. 
  • The meeting followed up a phone conversation between Chinese President Xi Jinping and U.S. President Joe Biden on Sept. 10. 
Link to the piece is here (may be gated). The key takeaway is of course a little more communication between the two. US President Biden and China’s President Xi have subsequently agreed to a summit meeting (virtual) later in 2021.
Via Caixin this report on the meeting in Switzerland between China's top diplomat Yang Jiechi snd U.S. National Security Adviser Jake Sullivan. 

Yang Jiechi is a member of the Political Bureau of the Communist Party of China Central Committee and director of the Office of the Central Commission for Foreign Affairs.

US Indices catch a late bid to finish at the highs of the day

Debt ceiling optimism turned the market

The GOP offer of a two-month debt ceiling extension — even if it’s not accepted — is a strong signal that the US isn’t going to default. Despite all the talk and games, US politicians aren’t going to let the banking system crumble because of some stupid political games. They’re great at getting the market to fret though.
  • S&P 500 +20 points to 4365 (+0.5%)
  • Nasdaq +0.5%
  • DJIA +0.3%
We’ve really carved out a range over the past week.
Debt ceiling optimism turned the market
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