We have noted that Williams is in the so-called “initial conditions” group that bases its monetary policy views on the proximity to full employment and confidence that inflation is headed toward the 2% target. Still, his view of appropriate policy has moved from four hikes in 2016, at the beginning of the year, to appearing to see one hike as appropriate, which is a journey that many of his colleagues have taken. Williams saw “a gradual path of removing accommodation, taking our foot very gradually off the gas” as appropriate. When pressed on whether he thought this gradual path would include any rate hikes this year, he answered: “In my view, it does. We’ve been adding enormous policy accommodation over the past several years. As the economy gets closer to its goals, we can again pull our foot off the gas a bit and hopefully execute a nice, soft landing over the next couple of years.” He also said that “a nominal fed funds rate of around 3 percent is probably the best estimate of a normal interest rate.”
Bullard continued to see only one rate hike in total in the next few years as likely to be appropriate, although he did note that the optimal time to hike rates is after good economic news. He appeared to prefer the Dallas Fed’s trimmed-mean inflation measure to the core PCE inflation measure.
We continue to expect one rate hike this year, in December.