Kaplan (Sep. 7) said, “We ought to be moving toward neutral. Everything that’s in this jobs report today just causes me to reaffirm that view. We’re at or near full employment, or past it.” The wage data in particular encouraged him: “There is wage pressure, and I think it’s building.” His estimate of neutral was 2.5%-2.75%, which is three hikes away. However, he continued to be wary of a possible causal negative link between a yield curve inversion and economic activity. He also thought the decision about whether to overshoot the neutral rate could be postponed until later, as neutral would be reached in “spring or mid-2019.” Williams (Sep. 6) noted that the FOMC has been surprised by low wage growth and saw the data as allowing “relatively patient” policy and as a “good sign that we can continue to let this economy run strong.” He did not see a yield curve inversion as “a deciding factor” for rate policy. He saw “maybe a slight tick up” in r-star versus its value a couple of years ago, but to no higher than 3% (nominal). As such, “The path we are on is a good one, gradually [hiking] back to normal.” Mester (Sep. 7) thought the jobs report was “pretty strong” and warranted “moving toward neutral.” She mentioned that her growth projections have strengthened since June.
A few, in particular, also explored the need for the funds rate eventually to move beyond neutral, into restrictive territory. Evans (Sep. 6), who has had a dovish reputation of late, argued that meeting the dual mandate would “entail moving policy first toward a neutral setting and then likely a bit beyond neutral to help transition the economy onto a long-run sustainable growth path with inflation at our symmetric 2 percent target.” He cited the funds rate overshoot in the June SEP and thought that such a policy posture would be “quite natural and would be consistent with some moderation in growth and a gradual return of employment to its longer-run sustainable level.” He previously thought that the neutral rate was 2.75%. Rosengren (Sep. 7) argued that a pace faster than the current gradual pace is not warranted because “we don’t have that much inflationary pressure at this point.” He warned that if his projections materialize, then “somewhat restrictive policy” will be needed over time. He added, “I don’t think there’s anything special about pausing at any one point” (Sep. 10). His neutral rate estimate is close to 3%.
Bullard and Kashkari disagreed with this consensus view. Bullard (Sep. 5) cited the current flatness of the yield curve and market-based inflation expectations to argue that current rate policy is already “neutral or even somewhat restrictive.” He also dismissed low unemployment and higher GDP growth as reliable signals of inflation pressures. Kashkari (Sep. 5) continued to view the cumulative rate hikes thus far as too aggressive, and suggested that rate hikes should cease unless “we start to see signs that it’s overheating [because] we can always raise rates then.” Lack of faster wage growth was an indication to him that “there may be some more labor-market slack.”
A couple policymakers mentioned stress in Turkey and Argentina, but they expected the risks to be contained. Kaplan cast some doubt on whether “we’re going to get the tailwind from global growth that we’ve been getting” (Sep. 7). Williams thought that EM stress does not currently pose “significant risks to the U.S., but we need to be on top of that” (Sep. 6).