The FOMC participants who spoke last week gave their views on Friday after the release of the October employment report. Board Vice Chair Fischer’s speech was the most significant. He participated in a panel on “Policy Changes After the Great Recession,” concluding his brief opening remarks by saying that uncertainty about near-term productivity growth “will be answered by the behavior of output and inflation as we approach and perhaps to some extent exceed our employment and inflation targets.” The FOMC has long projected that inflation would reach, but not overshoot, the 2% objective. While such projections of course likely imply some risk of exceeding the 2% objective, this comment suggests some tolerance of an inflation overshoot. It is particularly significant coming from Fischer, given his position as Board Vice Chairman, because that suggests it is more likely to be the consensus view on the FOMC. Moreover, he is seen as one of the more hawkish centrists on the Committee, so such a comment is a dovish signal about the forthcoming pace of rate hikes.
Fischer, Lockhart, and Kaplan reacted positively to the October employment report. Fischer noted that the labor market has “had a pretty good year” and “is close to full employment.” He pointed out that “the rise in participation may reflect the effects of the modest pickup in wages we are now seeing.” Lockhart noted that “the top-line numbers look solid” and added that “there’s a relatively high bar, at least in pure economic terms… to not moving in December.” Kaplan shared a similar view: “There’s no question that in this most recent jobs report that just came out there was a little bit improvement in wage growth…The question though, historically, if there was an improvement in wage growth, you would have seen that ultimately filter through to inflation…I’ll be interested to see how much of that does flow through.” He reminded the audience that he had already been comfortable with a rate hike at the September and November meetings: “I said after the September meeting that I was comfortable at that point with removing accommodation, had the same view in November.”