Blackout interrupted the flow of speeches and interviews by Fed policymakers, though two squeezed a speech or interview in before the blackout began on Tuesday. Still, the limited number of talks and interviews repeated common themes for policymakers: policy adjustments should be “cautious and patient” (Dudley), but policymakers should, when it’s appropriate, resume normalization at a pace likely to be faster than priced into markets (Rosengren). It is important to appreciate that, in the FOMC’s thinking, the two themes are perfectly compatible with each other. Other common themes were, explicitly or implicitly, that an April hike was off the table and that the FOMC, after the very weak Q1, was in “wait and see” mode between this meeting and June, without leaning one way or another, pending evidence of a rebound in Q2.
Rosengren’s talk was the richest. First, he repeated his warning to the markets that the pace of rate hikes is likely to be faster than that priced into markets, pointing to a likely market correction if the FOMC proceeds as anticipated. Second, and the most revealing message of the week, were his remarks about the balance that the Committee needed to keep with its strategy of remaining sufficiently accommodative to lower the unemployment rate below the estimated NAIRU. Up to a point, this would be desirable because it might pull some workers back into the labor market. But, if pursued too aggressively, it could lead to an overheated economy with unacceptable upward pressure on inflation, which, in turn, would call for a faster pace of rate hikes than the Committee now anticipates and, as a result, potentially a recession.