For a given period, there tend to be certain phrases that appear in every speech: Last week, the phrases were “data dependent” and “gradual.” Policymakers can view the same data differently, which makes disagree on how gradual they believe appropriate policy should be. In most cases, speeches last week repeated earlier themes. So we are always on the lookout for someone who changes his mind as perhaps a leading indicator of movement in the consensus. We saw Lockhart’s talk as the highlight of last week, as he changed sides. He said he would no longer back an April hike and appeared to raise the bar for a June hike, though he continued to say 2 to 3 hikes this year would still be possible. Evans was in the middle, saying the fundamentals are pretty good and consistent with gradual normalization and he still expects two hikes this year will be appropriate. But he was focused on inflation, saying the Fed needs greater confidence that inflation will rise to 2% target and would be cautious about rate hikes until then.
Policymakers gave two interpretations of the data over the period since December. For Lacker and Williams, the data since December had not changed their forecasts. Both saw inflation firming. Williams’ views about appropriate policy—roughly 2 to 3 hikes this year—were unchanged since stepping out of the March meeting. In contrast, the same data had a different effect on Harker and Lockhart. Both Lockhart and Harker seemed to see the outlook as, in Lockhart’s words, “weak and apparently getting somewhat weaker.” Harker became more cautious about the pace of hikes, and said that policy should err on the side of accommodation and wanted to see firmer data on inflation to provide more confidence in stable long-term inflation expectations. Lockhart said he would need to see four specific improvements before he would back a June hike: probable 2% growth this year, continuing monthly payroll gains of 200 thousand, firming inflation, and stable inflation expectations.