Governor Brainard recently set out the intellectual case for caution about a December hike (9/5). The key consideration will be the assessment of the underlying inflation rate at that point (see What Will It Take to Raise Rates in December?). Most other FOMC participants are also in a wait-and-see posture, based on their uncertainty about what the underlying inflation rate is. Brainard’s case for caution touches on almost all the questions about the Phillips curve we discussed in a recent commentary (see Trouble with the Phillips Curve). For more detail on our views on Brainard’s speech, see Brainard: The Underlying Inflation Rate and the Case for Caution.
President Dudley’s speech (9/8) and subsequent interview (9/9) illustrated the conflict within the Committee on how to interpret recent inflation developments. Recall that his most recent public remarks before these, in August, leaned in favor of a December hike: “I would be in favor of doing another rate hike later this year.” His speech last week appeared to lean on the optimistic side, pointing to possible structural changes: “Over the coming months, I hope that we will be better able to differentiate between these competing explanations. If it turns out that structural changes have played a significant role, I would generally view this as a positive, rather than negative, development.” But in the interview he gave the next day he had more of a wait-and-see attitude: “It’s too soon to judge…exactly the timing of when the next rate hike might occur.”
The Senate Banking Committee voted to advance the nomination of Randal Quarles to Fed Vice Chair of Supervision for full Senate confirmation. For our views on Quarles, see Quarles’s Confirmation Hearing: Mainstream Republican Views.
Vice Chairman Fischer announced his resignation from the Fed, effective mid-October. For our views on his departure’s impact on monetary policy, see Fischer Resignation: December Hike Still About the Incoming Data.