Policymakers Address Stronger Outlook

Several policymakers addressed the outlook last week, and we look forward to Chairman Powell’s speech on the economic outlook this Friday. President Bostic (3/28) said, “the inflation measures we are looking at are trending toward 2 percent. The evidence is more there than some may understand. Let’s get back to neutral.” As other policymakers have done since volatility in equity prices began, he downplayed the most recent bout, saying, “there was going to be a time when we would return back to average [levels of volatility].” President Harker (3/29) was upbeat about the outlook and projected two more rate hikes this year, saying, “It’s more the firming of inflation that has moved me from two to three.” He expected inflation to reach two percent this year and then overshoot the objective slightly. For him, the shape of the yield curve is a consideration in determining the appropriate pace of rate hikes. He expected the yield curve to steepen as issuance increases and the Fed’s balance sheet shrinks, but said that, “If that doesn’t occur in a way that I anticipate, then I’d be willing to slow the pace of increases.” President Mester (3/26) acknowledged the stronger outlook but sounded cautious, at least for a policymaker that in the past we’ve considered to be to the hawkish side of center. She said, “We want to give inflation time to move back to goal,” and said FOMC participants’ median projected pace of rate hikes qualified as “gradual.” She said, “I don’t feel that there’s a lot of excess financial imbalances out there,” and that continuing to remove accommodation would limit the chances of any forming.