Fed members sound hawkish, 3 FOMC members express worries about inflation

The US 10-year has touched a high of 2.63 percent last seen in March 2019 and dollar index too has touched a 2 year high of 99.63. This, after 3 Fed governors - worried about inflation - spoke of 50 bps rate hike in one go in May and of reducing the Fed’s balancesheet at a rapid clip.

Federal Reserve Vice Chairman Lael Brainard said that the Federal Open Market Committee (FOMC) will continue to tighten monetary policy through a series of interest rate increases and by starting to reduce the balancesheet at a rapid pace from May meeting. She added that she expects the balancesheet to shrink considerably more rapidly than it did during last rundown in 2017-2019.

Again just yesterday, the San Francisco Fed President, Mary Daly spoke at a public meeting and said that inflation is at 40-year high, it is harmful and the Fed is on its case. She also supported the idea of balancesheet run off and said that it should start in May.

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These two statements are also important because both Brainard and Daly are perceived to be doves in the FOMC.

Also the Kansas City Fed President Esther George, in an interview to Bloomberg TV, said that 50 bps hike in May is an option and that she would alongside look at the Fed's balancesheet reduction.

Here are some details of the balancesheet. Its total size is $8.98 trillion more than double $4 trillion in March 2020, i.e. before COVID and just $0.4 trillion or $400 billion in 2008 during Lehman crisis.