As the debate over the time frame for the first Fed rate hike heats up, we look at what the various members of the Federal Open Market Committee that spoke over the past few days during the Jackson Hole Symposium said.
The Dove
Narayana Kocherlakota, Minneapolis Fed Chair
- “Labor markets as remaining some way from meeting the FOMC’s goal of full employment. There are many people in this country who want to work more hours, and our society is deprived of their production.”
- "You can certainly think about monetary policy having an impact on fixed investment, therefore affecting capacity in the labor market."
Neutral
Janet Yellen, Federal Reserve Chair
- “The current very moderate wage growth could be a misleading signal of the degree of remaining slack.”
- “Tightening monetary policy as soon as inflation moves back toward 2 percent might, in this case, prevent labor markets from recovering fully.”
Denis Lockhart, Atlanta Fed President
- “There are facets of the labor market that still remain some distance from where we want to be when we begin a tightening cycle. I’m the camp that still sees a reasonable amount of slack that can be absorbed if we are a little patient before raising interest rates.”
- “What is the risk of being too late? It could be unwelcome inflationary pressures that look like they are going to be persistent. I find it low probability, frankly. We still are below the target and even with the firming we saw earlier this year we’ve seen a softening. So we still have some room just to get close to target.”
- "I'm holding to the view that mid-year 2015 is probably about the right time for the beginning of a cycle of tightening."
John Williams, San Francisco Fed President
- “The economy is still benefiting from strong support from the Fed, and we don’t want to remove that yet.”
- “A rate hike some time in the middle of 2015 seems reasonable.”
The Hawks
James Bullard, St. Louis Fed President
- “I’ve penciled in the end of the first quarter next year” for the firstincrease since the Fed dropped rates to near zero in 2008
- “Things are looking better and that will put the committee in a position to start normalizing policy."
Charles Plosser, Philadelphia Fed President
- “I’m very uncomfortable with the notion that we have to keep monetary policy at zero interest rates until the labor market has healed completely.”
- “The longer we wait, the bigger we risk we’ll have to raise interest rates faster when the time comes.”
Esther George, Kansas City Fed President
- “But I do think many of the policy benchmarks we look at are already signaling that we should be off of 0 percent.”
- “Sooner rather than later…so that the economy has time to adjust to moving off of negative real interest rates.”
There is no better reflection of the Fed’s mixed position than the Fed Chair herself. Ms. Yellen reiterated her stance on the labor market still containing some slack, but keeps herself open to the idea of increasing rates earlier than anticipated if employment shows significant qualitative improvement. This was quickly balanced by the suggestion that their forecasts may be moved back if labor conditions deteriorated. The Fed seems unlikely to surprise us with a rate hike at the end of 2014, as most of the ardent hawks have spoken of a move in ‘early 2015.’
What is interesting to observe here is the names of the voting members in the committee next year. If we take a look at the table below, it shows us that the majority of the voters during the year that the return to rate hikes is expected to begin are more of the ‘Neutral’ stance. With little pre-commitment amongst these members, speculators are wary of placing trades on hawkish forecasts – even going so far as to discount the Fed’s own forecasts.
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