Fed Officials Ponder Slow Inflation With December Hike On TableBy , , and
San Francisco Fed chief says data to dictate rate-hike pace
Kansas City Fed’s George backs tightening in ‘small doses’
Federal Reserve officials said there’s room to be patient in the run-up to their December policy meeting, even as they aired varying degrees of concern over this year’s inflation slowdown.
San Francisco Fed President John Williams said he expects “gradual rate increases” over the next couple of years, with one possibly as early as December, and Dallas Fed President Robert Kaplan said he’s keeping an open mind toward an increase that month. Kansas City President Esther George, a consistent inflation hawk, said she favors tightening in “small doses” and the committee should take it on a meeting-by-meeting basis.
Kaplan said he’s closely watching recent low inflation readings, while George cautioned against taking too much of a signal from it.
The trio of Fed speakers commented on the heels of an important monetary-policy decision. The U.S. central bank announced plans earlier this week to begin slowly shrinking its $4.5 trillion balance sheet in October and published forecasts showing that officials still expect to raise interest rates for a third time in 2017, with three more quarter-point hikes penciled in next year.
“Although I do expect us to need to raise rates gradually over the next couple of years, it’s not like we need to raise rates a lot over the next couple of years,” said Williams, who doesn’t vote on policy this year. He added that the pace “will depend on how the economy progresses.”
Williams, speaking to reporters in Zurich, said that in the event the U.S. economy underperforms significantly, the Fed’s first move “would be to cut interest rates and hopefully articulate clearly our views on why we’re cutting interest rates and how long we expect to keep them low.”
Fed officials are counting on steady growth and low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases and a reversal of quantitative easing.
Unemployment has declined and stood at 4.4 percent in August, which is below the Fed’s estimate for the level consistent with price stability over the longer run. Despite this progress, inflation has been disappointingly weak. After briefly poking above the Fed’s 2 percent goal earlier this year, the annual rise in the personal consumption expenditures price index slowed to 1.4 percent in June and July.
Kaplan, a 2017 policy voter, said he’s waiting to see whether cyclical pressures pushing up prices can overwhelm structural factors holding them down.
“There are a number of reasons” the U.S. isn’t reaching its inflation target, and a number of those are “not -- underline not -- transitory,” Kaplan said, speaking at an oil conference in Oklahoma City.
George, speaking at the same conference, said inflation “moves around, we’ve seen this in the past,” and that "my own concern is to not get too narrowly focused in the near-term in reacting to inflation.”
The Kansas City chief, who doesn’t vote on policy this year, also cautioned that there were risks with leaving monetary policy too easy for too long, including the concern that this could spur damaging risks to financial stability.
“We’re looking at an economy that appears to be operating at or near full employment, and inflation is low and stable at this point,” George said, while signaling that she was comfortable with the central bank’s strategy of gradual rate increases.
“I support an approach that removes accommodation in small doses,” she said. “I do think we have to keep moving forward with a view on the long run.”
— With assistance by Andrew Atkinson, and Lorenzo Totaro