Both the patient and ready-to-go camps were well represented in remarks by participants over the last week. Those in the patient camp continued to advocate a cautious approach to raising rates, but one member of that cohort, Evans, signaled that he might be prepared to support a hike in December. This is what we have expected: remarks that suggest support for a December hike from the ready-to-go camp and a willingness of the patient group to make a move in December, albeit as part of a very slow course of rate increases. Participants also continued to express concerns about the challenges of a low-r-star economy for monetary policymakers. Evans’ speech on a symmetric inflation objective and the case for overshooting was the highlight.
Dudley counseled caution and risk management in thinking about removing accommodation because of asymmetric risks near the zero lower bound: “A risk management approach to monetary policy would suggest that the more concerned one is with the effectiveness of these policies at the zero lower bound, the more cautious one would be in the process of removing accommodation.” Evans, like Dudley, made clear that he remains in the patient camp. But while he said he would prefer to wait to gather more information, when speaking to reporters he also said a December rate move “could be fine.” He added, “I wouldn’t be surprised if I was agreeable to a December meeting…One move isn’t that big of a deal either way.”
Fischer characterized the September decision not to hike rates as “a close call,” noting that with the current level of the neutral rate, the current stance is “modestly” accommodative. He did not seem worried that the next rate hike would come too late, arguing that, “since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years.” Not a clear endorsement of support for a December hike. He could go either way.
Lacker, among the most hawkish of the ready-to-go group, again called for preemptive action: “While inflation pressures may seem a distant and theoretical concern right now, prudent preemptive action can help us avoid the hard-to-predict emergence of a situation that requires more drastic action after the fact.” Mester likewise said that the argument for hiking was a preemptive one, and said that the case for a rate hike when the Committee meets in November “would remain compelling.”
Fischer expressed a universal concern among participants about the apparent persistence of low equilibrium rates and its implications for monetary policy, noting that “we could be stuck in a new longer-run equilibrium characterized by sluggish growth and recurrent reliance on unconventional monetary policy.” But he pointed to fiscal policy playing a more important role in addressing the underlying causes of low interest rates, an increasing refrain from monetary policymakers around the world.
Evans gave the most interesting talk, making a strong case for following the logic of a symmetric inflation objective and explicitly calling for the FOMC to aim to temporarily overshoot the 2% inflation objective. Such a direction would of course call for lower rates for longer.