Fed's Biggest Hawk Folds: George Says "Now May Be A Good Time To Pause Rate Hikes"

According to JPMorgan, Kansas City Fed president Ester George is the Fed's most prominent (voting) hawk.

Which is why it is notable that moments ago George, the Fed's biggest hawk, officially threw in the towel when during a speech for an event at Kansas City, George said that "it might be a good time to pause our interest rate normalization, study the incoming evidence and data, and verify our current location."

Additionally George said that while "earlier in the normalization process, the FOMC provided forward guidance suggesting that monetary policy was accommodative,” she then added that "given current economic conditions, providing such explicit guidance now about the future path of policy rates would not be appropriate in my view", confirming that the Fed will be especially Dow data-dependent.

She hedged her dovishness by saying that "it is possible that some additional rate increases will be appropriate." But, she added "making that judgment is not urgent and should depend on a careful look at the data and gathering additional insight into where our destination is, how much further we need to go to reach it and how quickly we should get there."

She was less deterministic on the ongoing balance-sheet rolloff, saying that "it is unclear whether, or how much, this roll off is further removing accommodation" even as she noted that she is "mindful that the effects of past policy actions have not yet fully played out, calling for patience in considering our policy actions."

Why is this notable? Because "failure to recognize these lags could lead to an overtightening of policy, a downturn in economic growth and an undershooting of our inflation objective."

Of course, one can say that a decade of record liquidity injections and ZIRP means that the Fed is years behind the normalization process but since the Fed can barely weather a 20% drop in the S&P before halting rate hikes (at 2.25%), and is even contemplating halting the balance sheet shrinkage when only 10% of the Fed's bloated assets have been unwound, it is painfully clear that Ben Bernanke was spot on when he said several years ago that there will be "no rate normalization in my lifetime."

And yet while the capitulation by all the Fed's hawks is surprising, what may be even more surprising is the lack of any jump in stocks after her statement, which perhaps is to be expected after both Powell and Clarida already made clear that the Fed is effectively done with the tightening cycle, and what comes next is a rate cut, one which inevitably launches the next recession.