In a WSJ interview, Kansas City Fed Esther George said that with inflation at at 7.5% in January, and the benchmark interest a rate near zero, Fed’s policy is “out of sync”. But she said it’s too soon to say if Fed should hike by 50bps in March. She also hasn’t form a view on how much interest rate has to go up this year.

“What we have to do is be systematic,” George said. “It is always preferable to go gradual…Given where we are, the uncertainties around the pandemic effects and other things, I’d be hard-pressed to say we have got to get to neutral really fast.”

“If we get to March and the data says we should be talking about that [a half-point rate increase], I’m sure that will be in play, but I’m not sure that is the answer, per se, to how we get there,” George added.

She also dismissed the idea of holding an emergency FOMC meeting to raise interest rate. “I don’t know that I’d call the markets reacting to data an emergency here, because frankly, in my own forecast of looking where inflation was moving, the print was not a surprise,” she said.

In a speech overnight, Fed Governor Michelle Bowman asserted, “I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way.”

She acknowledged that interest rates “appears to be restrictive” while financial conditions “have tightened since September”. However, “We don’t yet know the effects of tightened financial conditions on economic activity and inflation, she cautioned.

“There is an unusually high level of uncertainty regarding the economy and my own economic outlook, especially considering recent surprises in the data, data revisions, and ongoing geopolitical risks,” she noted.

Full speech of Fed Bowman here.

New York Fed President John Williams said the economy is on a “pretty good trajectory”. And, “it’s really a matter of if there’s more or less fiscal policy that maybe tilts that trajectory”. He expects the economy to be back close to full employment in “about three years time”, but “there’s clearly a lot of unknowns”.

On Fed’s average inflation targeting, “we’re purposely overshooting that moderately for some time to get that balance,” he said. “To me, success is not some arithmetic or some formula but it’s really this notion of inflation expectations, how people think about what’s inflation going to be in the future.”

US non-farm payroll report will be a major focus today and could seal the case for another FOMC rate cut later in the month. Fed fund futures are pricing in “only” 93.5% chance of another -25bps cut to 1.75 to 2.00%. Markets are expecting 162k job growth in August. Unemployment rate is expected to be unchanged at 3.7%. Average hourly earnings are expected to rise 0.3% mom.

Looking at other related data, ADP reported 195k growth in private sector jobs, which is positive. Four-week moving average of initial jobless claims was largely unchanged, edged up slightly from 211.5k to 216.3k. However, ISM manufacturing employment dropped sharply from 51.7 to 47.4, signaling contraction. ISM non-manufacturing employment dropped -3 pts to 56.2. Conference Board consumer confidence dropped slightly from 135.8 to 135.1. The over all set of data suggested some solid NFP readings today.

There is hope for some sort of progress in US-China trade negotiations in October. More importantly, as China stop short of retaliating against the latest round of 5% tariffs by the US, chance of further escalation has somewhat receded. Strong job numbers will give Fed policy makers more reasons to keep bullets at bay first.