Federal Reserve officials meet in Washington this week to vote on whether the nation's economy is on sufficiently solid footing to sustain the first-interest rate increase since 2006.
Many investors don't believe there will be a move this year, according to pricing in federal funds futures, but the Fed has not taken it off the table. The move, when it comes, is expected to be just 25 basis points. That's tiny, but the message will be monumental: It will show that the Fed believes the U.S. economy has healed from the worst recession since the Great Depression and the move will stoke expectations for more increases ahead.
In addition to their meeting on Tuesday and Wednesday, officials also gather Dec. 15-16. Thirteen of 17 policy makers signaled in September that they expect to raise rates this year, and Chair Janet Yellen has since said she anticipates an increase, assuming the economy grows as forecast.
Here are the key comments Fed speakers have made since they last met, alongside crucial economic developments. The list isn't exhaustive, but it does line up with falling confidence that the Fed might hike this week (and, if you keep reading, you'll see December's likelihood has also waned).
Chair Janet Yellen, Sept. 17 and 24
"The outlook abroad appears to have become more uncertain of late, and heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets," Yellen said at her post-Federal Open Market Committee press conference last month. She also said that as the strong dollar and cheap oil exert downward pressure on inflation, the committee is looking for "further developments" that could include additional labor-market improvements. "Most participants continued to think that economic conditions will call for or make appropriate an increase in the federal funds rate by the end of this year." Speaking in Amherst, Massachusetts, a week later, Yellen reiterated her expectation for a hike this year "followed by a gradual pace of tightening thereafter. But if the economy surprises us, our judgments about appropriate monetary policy will change."
Jobs Report, Oct. 2
The only monthly labor-market report between the September and October meetings came out on Oct. 2, and showed that a disappointing 142,000 new jobs were created last month, missing the Bloomberg survey projection of 200,000 jobs. What's more, August's originally sunnier reading was revised down by 37,000 jobs to 136,000.
Vice Chairman Stanley Fischer, Oct. 11
"The pace of job growth is still sufficiently strong gradually to erode slack in the labor market, and the prospects for further labor market improvement look good overall," Fischer said in Lima, acknowledging the September jobs slowdown. "As long as inflation expectations remain well anchored, inflation is likely to move back toward 2 percent as the transitory effects of oil prices and the dollar fade, and as the economic expansion continues." He also noted that in September, "most participants, myself included" expected an increase in the fed funds rate later this year. "That assessment was premised on the assumption of continued solid economic growth and further improvement in the labor market."
Chicago Fed President Charles Evans, Oct. 12
“The last time I put my projection together I thought appropriate policy would have liftoff in the middle of 2016," Evans said in Chicago, repeating his stance. "That’s based on a forecast.”
Atlanta Fed President Dennis Lockhart, Oct. 12
An improving U.S. job market warrants an interest-rate increase this year, Lockhart said in Orlando, Florida. “We are getting much closer to the finish line from the point of view of whatever you would consider full employment,” he told reporters. "I would expect to continue to make progress."
Governor Lael Brainard, Oct. 12
"The downside risks make a strong case for continuing to carefully nurture the U.S. recovery—and argue against prematurely taking away the support that has been so critical to its vitality,'' Brainard said in a wide-ranging speech that also tackled subdued inflation, remaining slack in the labor market, and mounting global risks as China slows. "These risks matter more than usual because the ability to provide additional accommodation if downside risks materialize is, in practice, more constrained than the ability to remove accommodation more rapidly if upside risks materialize."
Governor Daniel Tarullo, Oct. 13
"Right now, my expectation is, given where I think the economy would go, I wouldn’t expect it would be appropriate to raise rates,” Tarullo said in a CNBC interview. “I want to hasten to add that that is an outlook that changes based on developments in the economy.” Tarullo is looking for "tangible evidence" that inflation is going to pick up, he said.
Richmond Fed President Jeffrey Lacker, Oct. 9 and Oct. 14
“We’re there,” Lacker said in an interview in his office on Oct. 9. He dissented in September in favor of a rate rise. “Pushing on to wring more slack out—there are some risks associated with that." Lacker said in an interview with Fox Business Network on Oct. 14 that he doesn't know if the Fed will raise interest rates in October.
Producer prices and retail sales disappoint, Oct. 14
Retail sales climbed by just 0.1 percent in September from August, a lower-than-expected reading that followed little change in the prior month, the Commerce Department reported. A separate report from the Labor Department showed falling energy costs damped wholesale inflation. The producer price index decreased 0.5 percent, the most since January.
San Francisco Fed President John Williams, Oct. 8 and 19
Speaking in Spokane, Washington, on Oct. 8, Williams said that "given the progress we’ve made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year." He neither reiterated nor walked back that statement while speaking on Bloomberg Television Oct. 19, though he did say his view is that "the economy is still on a good trajectory.”
Worth noting: These developments have not been good for the outlook for a hike by December, either, as you can see above. Rather than watching for an increase this week, markets and economists will be on the lookout for any signal of whether officials are sticking by their expectation for liftoff in 2015 or shifting in favor of 2016.