The three official dissents to the decision by the Fed to keep interest rates unchanged last week revealed the intensity of the split on the Committee between the ready-to-go camp and those who counsel patience. As a result, it was no surprise that outspoken policymakers on each side of the debate made their case immediately after the meeting. Rosengren released a statement explaining his dissent. He said that “the economic progress since the last tightening in December might, by itself, be sufficient to justify a further increase in the rate target.” This fits with a theme in the ready-to-go camp that the FOMC is at or very close to full employment and making progress and on track to hit its inflation objective. Then he gave a rebuttal to the widely held view on the Committee that it would be desirable to remain accommodative long enough to lower the unemployment rate below the NAIRU to bring “more workers into the labor force – but, unfortunately, only temporarily.” That raised his concern about “overheating” and “increasing financial-market imbalances,” both of which could threaten the sustainability of the expansion. He said that “it is in considering the implications of current policy for the sustainability of the expansion that the case for raising rates has now become even more compelling” (emphasis his).
Kaplan spoke at an energy forum in Houston and, despite his Bank having voted for a discount rate increase in July, he placed himself squarely in the patient camp: “We don’t think the economy is overheating…We can afford to be patient in removing accommodation. We are not as accommodative, probably, as people would think.” Kashkari was also on the dovish side, noting the importance of considering and managing the asymmetric risks present when close to the effective lower bound. He said, “We have more tools to address high inflation than low inflation. Risks are asymmetric. Worry more about too quickly.”