Powell reportedly reiterated to House Democrats the Fed’s intention to proceed with a patient pace of rate hikes (Jun 27). Because inflation has been low, policymakers are able to proceed with rate hikes in a cautious manner. He reminded his audience that distributional issues are outside the Fed’s purview.
Policymakers remained steadfast in their view that rate hikes should continue. But they were split on how quickly and how far beyond neutral the FOMC should tighten policy. Rosengren argued that “We’re at a stage of the cycle [in which] I do worry about imbalances if we push the economy too hard” (Jun 28). As such, “the policy path that will increase the probability of a longer recession-free period is the path where the economy does not run above capacity and thus, fall far below the sustainable unemployment rate.” Kashkari wanted to wait once the funds rate reaches neutral (Jun 28). While Bostic warned that hiking more than a total of three times in 2018 could result in an overshoot, he also saw the danger in an overheating economy (Jun 28). Several policymakers continued to refer to a recession signal from an inverted yield curve.
Trade continued to be a source of downside risk, and policymakers appeared to have greater concerns. Bostic saw the balance of risks shifting to the downside as a result: “I’m not off of three moves yet, but if [trade policy] progresses the way it has over the past couple of days I think the likelihood is I’ll be moving away from four as a real possibility” (Jun 26). Bullard said he heard “full-throated angst” over trade and saw trade policy uncertainty spilling over into business spending. He said the prospect of tariffs had resulted in price increases among suppliers (Jun 28).
There was a range of views about the upcoming fiscal impulse, although policymakers generally agreed that the effects were highly uncertain. Barkin saw “at least a moderate boost” but nevertheless was hesitant to draw conclusions about the impact: “The aggregate effects of corporate tax cuts are especially hard to predict, as companies with different corporate structures may respond in different ways” (Jun 26). Kaplan saw the impetus from fiscal changes starting to fade in 2019, and Bullard saw the fiscal impulse as temporary and likely to reverse after next year.