The Fed Knows Better Than to Be Fooled by 'Soft' Data

Federal Reserve officials continue to anticipate additional monetary policy tightening this year on the order of another two interest-rate increases. They have no reason to back down just yet. The weakness seen in “hard” economic data based on actual performance relative to “soft” data, such as surveys, is enough to temper concerns that they are falling behind the curve and keeps a May move off the table. That means they can be patient and adjust their forecasts, if necessary, before the June 14 meeting.

On the dovish side, Chicago Federal Reserve President Charles Evans could support another two rate hikes if the forecast firms, but really maybe only one more. Similarly, St. Louis Federal Reserve President James Bullard is not pushing for an additional hike. On the more hawkish side, Boston Federal Reserve President Eric Rosengren argued for four increases, while San Francisco Federal Reserve President John Williams does not rule out such a scenario.