The debate on the number of hikes in 2018 suggests the consensus sees upside risks to the December median projection of three. Williams said either three or four hikes was “still reasonable” (Feb 2). Kaplan appeared to emphasize the upside risk to his baseline of three hikes this year: “If there’s a likelihood that I’m wrong, we may have to consider doing more…You will see some inflation pressure this year” (Feb 2). He argued that “The best chance to extend this expansion [is] for us to avoid getting behind the curve.” He suggested that, even with three hikes, the year-end funds rate would not surpass his estimate of the neutral rate.
Policymakers acknowledged the strength of the January employment report. Kashkari, who is among the most dovish, exclaimed that “This is one of the first signs that we’re seeing wage growth finally start to pick up” and concluded that, “if wage growth continues, that could have an effect on the path of interest rates” (Feb 2). Williams cautioned against excessive focus on a single month’s data; he wanted to see both good employment data and positive signs on inflation. Williams expressed continued faith in the Phillips curve, arguing that it “still holds true.” He would not be perturbed by inflation overshooting for a time. Kashkari, too, wanted the FOMC to treat the 2 percent objective as symmetric and not as a ceiling (Feb 5). Powell, after being sworn in as Fed Chair, remarked: “unemployment is low, the economy is growing, and inflation is low” (Feb 5).
Williams observed a disconnect between market expectations and Fed projections and saw recent increases in Treasury yields as “out-sized.” Kaplan said he was watching for signs of a buildup in leverage. As for the recent movements in equity prices, he said they will only know in hindsight if it is a market correction. Powell stated that “Our financial system is now far stronger and more resilient than it was before the financial crisis that began about a decade ago. We intend to keep it that way.”
Both Williams and Kaplan appeared open to the suggestion that the FOMC should hold press conferences after each meeting. Powell’s introductory speech alluded to a continuing emphasis on communication policy strategy: “As I begin my term, I want to stress my commitment to explaining what we’re doing and why we are doing it.”