Federal Reserve chair Janet Yellen may have seen two of her closest allies give up on rate hikes this year.
On Monday, Fed governor Lael Brainard said the way Janet Yellen and Stanley Fischer are talking about monetary policy is all wrong.
University of Oregon economist Tim Duy argued that Brainard’s speech amounted to a “policy bomb.”
On Tuesday, Fed governor Daniel Tarullo told CNBC that, “I wouldn’t expect it would be appropriate to raise rates” this year.
Tarullo and Brainard, as Fed governors, are voting members of the FOMC, the Fed’s committee that votes on monetary policy.
And as Bespoke Investment Group outlined last month, there hasn’t been a dissent from a Fed governor since 2005. After Tarullo and Brainard’s commentary, it seems the Fed could be headed for two.
In a speech given Monday, Brainard said right at the top that she would not address any timing concerns on when the Fed will or won’t raise rates, and instead made the case that the downside risks to the economy are the most important consideration for the Fed at this time.
Said another way, in Brainard’s view, the case for raising interest rates is not even close to as strong as some seem to suggest.
As Duy outlined, Brainard’s declaration that she wouldn’t deliver any calendar-based speculation on when rates will rise is a huge subtweet to the public statements delivered by Fed chair Yellen and vice chair Fischer, seen as the two most influential voices on the FOMC, the 10-member committee that votes on monetary policy.
Time and again this year, Yellen has said that she expects it will be appropriate to raise interest rates in 2015.Yet in her press conference following the Fed’s September meeting, Yellen spoke at length about inflation, going so far as to say the Fed’s credibility rests on getting inflation back to its goal of 2%.
In September, “core” inflation — the Fed’s preferred measure — rose 1.2% over last year, well below the Fed’s 2% target. The Fed hasn’t raised interest rates since July 2006.
Fischer’s speech delivered at Jackson Hole, however, was widely seen as giving the “green light” to raise interest rates despite inflation running below the Fed’s 2% target.
The argument made there by Fischer, and echoed by many Fed watchers and folks on Wall Street, was that with the Fed more or less meeting its labour market goal of “full employment,” inflation need not be running at 2% for the Fed to raise rates.
To some extent, then, it seems that Yellen’s press conference tempered the “hawkishness” of this reading of Fischer’s speech.
And now with Brainard and Tarullo — both voting members of the FOMC — making clear in public remarks on consecutive days that inflation running this far below the Fed’s target is not going to warrant a rate hike imminently, the prospects for Fed action seem to be growing more remote.