...Tim Duy of SGH Macro Advisors said in a note that there was a danger of a “possible leadership vacuum at the Fed” if the Biden administration did not make decisions quickly, both on Powell’s fate and other vacancies at the top of the central bank. Randal Quarles’ tenure as Fed vice-chair for supervision, which is responsible for banking regulation, expired this month without a replacement and no one has been tapped for the job. Meanwhile, the Fed is gearing up to start shrinking the pace of its asset purchases to slow the support for the economy as high inflation persists. Next year the Fed will be debating when and how to actually start raising interest rates. “The lack of White House attention to the Fed creates potentially enormous policy uncertainty,” Duy said...

...Tim Duy, chief U.S. economist at SGH Macro Advisors, said comments from the Fed are moving in an overall hawkish direction. He said it will be important to see if Fed Chairman Jerome Powell pushes back on such talk at his upcoming speech on Friday.

...“My instinct is that with Powell acting quickly to address the issue and assuming he can keep the scandals at arm’s length, he is still the favorite for the top spot,” said Tim Duy, SGH Macro Advisors chief U.S. economist, in a note last week...

“I view Rudd’s policy implications as an indictment of the Fed’s new policy framework,” Tim Duy, a former Bloomberg Opinion contributor who’s now chief U.S. economist at SGH Macro Advisors, wrote in a report. “There is clearly some internal conflict.” I wrote last week after the Federal Open Market Committee decision that Powell tried to walk back the central bank’s inflation fear, which was evident in the hawkish shift in the “dot plot.” The sort of questions raised by Rudd’s paper only increase the likelihood that policy makers will be leery of inflation that persistently exceeds 2% and that for all the talk about a “substantially more stringent test” to raise interest rates and the steadfast belief that price growth will be transitory, they’ll react similarly to the way they have in the past.

..."It's complicated messaging right now," said Tim Duy, chief U.S. economist at SGH Macro Advisors. "The reality is the tapering is not separate from the rate hike: once you start the tapering, you kind of start a clock on the rate hike."...

"...Leave it to Tim Duy, the provocative University of Oregon professor and chief U.S. economist at SGH Macro Advisors, to make the connection. Duy said the White House at this point is distracted and politically weakened by the events in Afghanistan. “I think that favors Powell in that he represents continuity and the path of least resistance,” he said. Powell, a Republican, would gain support from the GOP side of the aisle, and a key swing Democrat, West Virginia Sen. Joe Manchin, has said he prefers tapering sooner rather than later — which presumably means he doesn’t want a more dovish choice than Powell. That would make it difficult to get the realistic alternative to Powell, Fed. Gov. Lael Brainard, through Senate confirmation. “With Powell, Biden likely has an easier path to a bipartisan win, and I think his administration will be looking to rack up those wins, although the progressive wing’s calls for tighter regulation will also play then to the compromise of Brainard as vice chair for supervision (assuming, of course, that she would be interested in taking the job),” said Duy. According to a Bloomberg News article, Powell’s reappointment is supported by Treasury Secretary Janet Yellen, and Biden will make his decision around Labor Day. Duy said the Fed will wait till November to formally announce a slowdown in bond purchases. “I think a consensus will be easier to reach with two more employment reports, that the Fed would not want to announce a taper heading into another debt ceiling debate in October, and that the Fed will want to use September to telegraph that the taper is coming,” he said. As for the Jackson Hole Fed gathering — being held virtually beginning Thursday — “watch also for signs that Powell has lost some of his conviction that the delta variant will have only limited economic impacts; any increase of concerns on this front would be a clear signal against September.”

...“In short, at this point, the Fed is just working out the details. Barring some dramatic change in the economy, tapering of asset purchases will begin in the next few months and end by the middle of next year,” said Tim Duy, chief U.S. economist at SGH Macro Advisors...

..."To the extent that inflation is transitory, this dip in real wages is also transitory," said Tim Duy, chief US economist at SGH Macro Advisors, a research firm for the financial industry and policymakers...

“People don’t buy a used car every month whereas many pay rent every month,” Tim Duy, a professor at the University of Oregon and chief economist at SGH Macro Advisors wrote in a note this week...

...What they’re saying: "Why will consumers pay more? Because they can afford it," SGH Macro Advisors economist Tim Duy writes in a note to clients. Duy says that inflation measures like CPI should be considered in the context of other key variables. "The main event is the dynamic between expectations, inflation, and wages," he writes. "One part of that dynamic is firms believing the consumers no longer have a choice but to absorb price increases." What to watch: Duy says to keep an eye on this dynamic as it, among other things, may complicate the Federal Reserve's efforts to stimulate employment while maintaining price stability...

“There’s a pretty sharp shift in the Fed’s approach to managing the recovery here,” said Tim Duy, an economist at SGH Macro Advisors and the University of Oregon. “The weight of the evidence that the economy is rebounding faster than expected, with more inflationary pressures than expected, finally broke through the Fed’s dovish stance.”

The Fed said in December it would slow the pace of the so-called quantitative easing program when the U.S. economic recovery showed “substantial further progress,” a vague goal that Powell said was “still a ways off” yesterday. “We should expect rhetoric to tilt more hawkish as Fed presidents stake out positions on ‘substantial progress,’” SGH Macro Advisors’ Tim Duy wrote Wednesday. “The participants raising their dots are going to want to talk about it.”

Yet enough has changed in recent months - and may start to change at an even faster clip - that analysts expect the Fed to at least acknowledge the start of policy discussions that will eventually lead to a plan to first reduce the monthly $120 billion in bond purchases to zero and then start raising interest rates. "This is about getting the ball rolling," in a process that may take months to complete, and in a way that avoids any rapid shift in sentiment among investors or consumers that could damage the recovery in the meantime, wrote Tim Duy, chief U.S. economist for SGH Macro Advisors and a University of Oregon professor focused on Fed policy.

Tim Duy, chief U.S. economist at SGH Macro Advisers, says economists are more likely to see 2023 as the date of a first hike, given the strength of the actual economic data that have come in since the last dot plot was released in March. Traders, by contrast, emphasize the signaling aspect of the dot plot, and that Chair Jerome Powell won’t want to step on his own message about keeping policy loose until the U.S. jobs market shows significant recovery. “This split in expectations has the interesting implication that there is a general lack of consensus about how the forecasting exercise of the [Summary of Economic Projections] integrates into the new outcomes-based framework,” Duy says.

In a note to clients this morning, Tim Duy of SGH Macro Advisors notes that this new weird shape of the curve holds true even if you look at alternative measures of non-employment besides the standard U-3 measure: "it appears that labor market frictions not related to unemployment insurance appear to have been increasing. That’s not exactly great news if you are expecting the end of enhanced UI benefits will dramatically ease labor market frictions."

...Tim Duy, chief U.S. economist at SGH Macro Advisors, analyzed the wave of comments from Federal Reserve officials, including Vice Chair Richard Clarida. “Notice how slowly the Fed is moving in the tapering direction, mixing in talking about tapering with policy still being in a good place and not seeing substantial progress ‘just yet.’ This is by design. It’s enough that if you are watching for it and you know what to look for, you see the subtle shift but not enough to be any kind of game-changer,” he said. Duy expects the formal pivot toward tapering to be announced at the Jackson Hole, Wyo. conference in August, with the actual reductions starting in the first quarter of 2022, or possibly the final quarter of 2021...

“The Fed has repeatedly said it will provide a long runway of guidance before tapering begins,” said Tim Duy, chief economist at SGH Macro Advisors, referring to the scaling back of asset purchases. “This is the front end of that runway.”

...Today's higher-than-expected reading will certainly stoke inflation fears, said Tim Duy, chief U.S. economist at SGH Macro Advisers. "Whether or not that translates to more sustained inflation over time is still an open question," said Mr. Duy, adding that those concerns are unlikely to sway central bankers. "The Fed has itself locked into their new policy framework and for right now they're treating this as a transitory event."

"'We have dumped an enormous amount of resources into the economy that was designed for a Great Recession-style shock, and that’s not the shock we had,' said Tim Duy, chief U.S. economist at SGH Macro Advisors, referring to the weak demand that followed the 2007-09 recession...Mr. Duy said “it is still an open question” whether the recent inflation flare-up will translate into sustained higher inflation..."