There were only two speeches last week, by Lockhart and Bullard, but there were public comments from a total of six FOMC participants. There was a contrast between Williams and Lockhart that likely reflected two camps on the Committee. Bullard is, we suspect, in a camp of his own. Williams said he would support a rate hike if circumstances didn’t change. All he needed to see was a “continuation of progress,” continued job gains, and “good signs on inflation.” He didn’t need to see a “big upside surprise.” Lockhart, on the other hand, said he would have to see evidence that circumstances have changed. While he described himself as “on the fence,” he saw a hike in June as a “real option” if the data confirm his expectation of a rebound in Q2. So he “is looking for evidence that invalidates [his] basic assumption” of a rebound. Still, he cautioned that while “there’s more data to come in…we will know relatively little about the second quarter by the June meeting.” Both Williams and Lockhart thought that the Q1 weakness reflected, to a substantial degree, residual seasonality, and Bullard also mentioned this possibility. Lockhart and Williams both said they were encouraged by the inflation data. Williams said he still thought two or three hikes would be appropriate this year, while Lockhart and Dudley said two rate hikes were possible. Bullard gave the most provocative and most surprising talk. He is torn between the FOMC’s (median) view about a gradual normalization and the “market” view of no normalization. Labor markets strongly favor the FOMC view, as does inflation closer to 2% and trending in the right direction. But weak growth since mid-2015 suggests “that the U.S. is growing below a trend pace of 2 percent,” and inflation expectations “remain low”—favoring the market view.
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