Fed Chairman Jerome Powell (right) sits next to Fed Vice Chairman Richard Clarida.
Many Fed watchers detect a dovish shift in the message from Federal Reserve Chairman Jerome Powell and his colleagues at the U.S. central bank since the last policy meeting earlier this month.
Powell and his No. 2 Richard Clarida used the analogy of being in a dark room to show the uncertainty facing the central bank.
Kevin Cummins, senior U.S. economist at NatWest, thinks the Fed leadership is trying to show an open-minded approach to policy.
Importantly, Fed watchers still see the central bank hiking rates by a quarter point at their meeting next month. It’s what the Fed does in 2019 that’s the real debate.
Cummins expects the Fed to step away from its recent automatic one-rate-hike-per-quarter pace and be more data-dependent.
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Last quarter, in September, the Fed hiked rates to a range between 2% and 2.25%.
Michael Hanson, head of global macro strategy at TD Securities, thinks the Fed is just putting some sugar in its communication to help the market swallow the medicine.
He thinks Powell will stick to the forecasted policy path of three rate hikes next year that would bring rates up to a range of 3% to 3.25%.
The market now thinks the Fed will stop hiking before interest rates hit 3%. Economists at NatWest agree.
Here are the crucial comments from all Fed officials who have commented on interest-rate policy over the past three weeks.
Powell: “So, you know, a good example is — a noneconomic example would be you’re walking through a room full of furniture and the lights go off. What do you do? You slow down. You stop, probably, and feel your way.” Appearance at Dallas Fed on Nov. 14.
Clarida: “As you move into the range of policy that, by some estimates is close to neutral…it is appropriate to sort of shift the emphasis towards being more data-dependent. I think Chair Powell the other day made the analogy … if you’re in a dark room, especially without your shoes on, you want to go slow so you don’t stub your toe. So I think data dependence makes sense right here.” Interview on CNBC on Nov. 16.
Philadelphia Fed President Patrick Harker: “At this point, I’m not convinced a December rate move is the right move, but I need to watch the data over the next few weeks before determining whether it is prudent to boost the cost of borrowing again.” Interview with Wall Street Journal on Nov. 16.
San Francisco Fed President Mary Daly: “It wouldn’t be surprising to me that we would need to go up again in December and a least a couple of times next year.” Interview with Bloomberg News on Nov. 12
Atlanta Fed President Raphael Bostic: “I don’t think we are too far from a neutral policy, and neutral is where we want to be. We may not be there quite yet, but I am inclined to think that a tentative approach as we proceed would be appropriate.” Speech in Madrid, Spain, on Nov. 15
Chicago Fed President Charles Evans: Stuck to his projection that the Fed could hike up to four times in 2019. Speech in Chicago on Nov. 16.
Minneapolis Fed President Neel Kashkari: “One of my concerns is that if we preemptively raise interest rates, and its not in fact necessary, we might be the cause of ending the expansion.” Interview on National Public Radio on Nov. 20.