Evans said, given the way the data are going, he could be comfortable with three hikes. As we have said, while he was at two hikes, he was nevertheless on the edge of three. Williams reiterated he is at three hikes, but also put a March hike on the table, as part of the three.
Policymaker Communications
Evans gave a speech last week with a cautiously optimistic tone. While he was upbeat on the outlook for growth, the labor market, and inflation, he warned that “downside risks remain.” As such, “appropriate policy calls for a slow pace of normalization” so the economy has a cushion against negative shocks. In particular, he pointed out the importance of inflation in his policy projections: “[Before tightening next,] I think you need to see progress on inflation…and I’m optimistic that it’s going to move up, but inflation is really one of the big issues right now.” He also revealed that the Chicago Fed’s estimate of the NAIRU is lower than those of other policymakers. He was quite optimistic about the prospect of expansionary fiscal policy: “If [new fiscal policies] are implemented, even if they resulted in higher deficits, I think that would be expansionary. I think that would be a good thing for the economy in some regard.” Although he saw two 2017 hikes at the December FOMC meeting, he noted that with “the way things are going, I could see three hikes. I could be comfortable with that.”
Williams gave an interview detailing his policy views. He appeared to be on the more hawkish side: “Given where we are in the economy, where the labor market is, the momentum we’re seeing, I think there are some arguments for, and of course against, moving earlier rather than later.” He added that he didn’t want to be too “timid” and “delay too long this path of rate increases.” Although he saw uncertainty with fiscal policy, he argued that with the current state of the economy the FOMC can still make decisions without knowing the actual outcomes from fiscal policy. For 2017, he saw three hikes as a “reasonable guess” and that a March hike was on the table. On when to alter the current reinvestment policy, he said “We’re not there yet,” but to him, three or four hikes this year would fit his interpretation of normalization being “under way.”