Last week saw FOMC policymakers continuing to indicate their support for a December rate hike. Powell pointedly remarked that “The case for an increase in the federal funds rate has clearly strengthened” since the November meeting. Dudley said that he “would favor making monetary policy somewhat less accommodative over time by gradually pushing up the level of short-term interest rates.” Kaplan argued that “there is some labor slack, but probably less than some people think because of demographics,” while Mester maintained that a rate hike would be “prudent.”
The FOMC’s potential response to policy changes under the new administration continued to be a topic of interest. Evans noted that the proposed policies would be consistent with the economy remaining strong in coming years, adding that the Fed incorporates fiscal policy into its decision-making, while Kaplan pointed out that how fiscal policy will change will remain uncertain into 2017, so it is crucial not to make assumptions that are too strong. Dudley echoed Kaplan’s view, arguing that “we’ll have to see what we actually get” with respect to fiscal policy changes in 2017 and beyond. But he did point out that the FOMC’s likely response to greater fiscal expansion would be to tighten “a bit more” than otherwise.