Led byFederal Reserve Chair Janet Yellen, monetary policymakers continue in their publicappearances to say they are targeting higher interest rates while acknowledgingglobal and other risks to their outlook.
Top Fedofficials have been out in force in public since their mid-March meeting, with investorswatching for any indication about what changes, if any, central bankers will maketo policy in the first half of the year.
Federal Reserve Chair Janet Yellen
Duringa March 29 speech in New York, Yellen made remarks that broader markets seemed tointerpret as dove-ish, saying that policymakers remained convinced that "onlygradual increases in the federal funds rate are likely to be warranted in comingyears." Yellen endorsed the idea that the "neutral" real rate — i.e.the rate needed to support full employment — had fallen to near-zero, and notedthat real interest rates were lower than that level.
Yellen said the FOMC continues to expect a moderate economic expansion and pointedto improving labor market conditions during her remarks, but also noted that manufacturingand exports have been hit by the appreciation of the dollar and other global developments.She said many of the headwinds are likely to lessen over time, and that forecastis a key reason she and other Fed officials see the need for piecemeal tighteningof interest rates. She conceded, though, that depressed oil prices or slow globalgrowth continue to present potential downside risks to the U.S. domestic outlook.
Perhapsthe most dove-ish element of her speech was her discussion of inflation, though,as Yellen said there are signs that inflation expectations may be drifting lower.However, she said that "the argument that inflation expectations have actuallyfallen is far from conclusive." A number of other Fed policymakers, includingGovernor Lael Brainard, have argued that the Fed must show that inflation is makingactual gains toward its long-term 2% target. Yellen added that if it needed to switchgears and provide accommodative policy, the bank would be able to employ the sameasset purchases and other tools that it used after the financial crisis once ithad cut rates to zero. Notably, despite much speculation in markets about the possibilityof negative rates, Yellen avoided any discussion of potentially pushing rates belowzero.
Federal Reserve Bank of St. LouisPresident James Bullard
Bullard'sspeech was on the Fed's March decision and whether it was consistent with the bank'sdot plot projection — a policy element Bullard is increasingly pushing as one thatFed officials may need to rethink or scrap altogether. Bullard notes that some inmarkets could have looked at the Fed's December 2015 dot-plot and determined thatconditions in March actually warranted a rate hike based on the Fed's past outlook— and that there is a risk that such statements will be viewed as "time inconsistent"and damage the bank's credibility. Bullard ultimately argues that the bank was consistentand held off on a hike because of some changes in conditions and risks outlook sincethen, as well as policymakers' belief that there is small difference from a policymakingperspective in waiting an additional meeting for further tightening. He concludedby saying that given the relative stability of the outlook in the dot plot despitesome notable headwinds, "the next rate increase may not be far off providedthat the economy evolves as expected."
Federal Reserve Bank of San FranciscoPresident John Williams
Williams,who has been perhaps the most positive Fed official in his assessment of the labormarket, spoke optimistically about the outlook for the U.S. economy during a March29 speech. He reiterated his rosy view of the U.S. economy in his remarks, arguingthat he sees further improvement in labor markets occurring and that recent datahas encouraged his belief that inflation will return over time to the Fed's long-runtarget. More specifically, Williams argued that in the parts of the U.S. economythat are not "traded globally, like housing rents, we're seeing prices increasein a way that reflects a stronger, tightening economy."
Federal Reserve Bank of PhiladelphiaPresident Patrick Harker
In aspeech that focused on how education challenges are affecting long-term growth prospectsfor the domestic economy, Harker argued that the U.S. education system needs tobe overhauled to provide better workplace skills. He pointed to apprenticeship programsin other countries as one possible model that could be brought into the U.S. system,and argued that policymakers need to ensure U.S. graduates have a "fair"chance at good outcomes. "When a large swath of young adults is increasinglyill-equipped to have a decent shot at economic success, we risk failure on a massivescale," Harker said.
Federal Reserve Bank of AtlantaPresident Dennis Lockhart
Lockhartsaid during a March 21 speech that he forecasts 2.0% to 2.5% growth for U.S. GDPin 2016 and said that stripping out volatile energy measures from inflation datashows inflation running not too far below the Fed's long-run target. He argued thatthe key factor driving the economy in 2016 and 2017 will be "the question ofwhether domestic demand will in fact hold up."