There was a rush for FOMC participants to get their talks and remarks out before blackout. That meant a talk and remarks even on a Saturday (Mester), and four last Monday, by Rosengren, Lockhart, Bullard, and, most notably, Yellen. Blackout began before the Michigan survey came out so we will be monitoring closely for discussion about that report from participants and in the statement, press conference, and the FOMC minutes.
Of course, the highlight was a speech by Yellen. While Lockhart and Bullard were more explicit about no longer supporting a June hike, Yellen also made this clear in her talk. Game over! She said that the recent signs of a slowdown in jobs growth “bear close attention” and called the most recent labor market report “concerning.” She also focused on uncertainties related to both the near term and, especially, the longer-term outlook. She also gave her preconditions for the next hike: “If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate.” That could well mean September for the next hike. However, she offered no timeframe, no longer saying “in coming months.”
Lockhart and Yellen both talked about Brexit uncertainty, with Lockhart saying it was one reason he no longer supported a June hike. We thought that Yellen would not have have supported a June hike, even before the May employment report, because it would be imprudent with such a potentially consequential event just around the corner.
Lockhart said he did not see costs of being patient “to the July meeting at least,” and that, although there is still time for three moves, he is now more inclined to think that only two are likely to be appropriate. Bullard did not support a June hike. As he has said before, he prefers not to move on the back of bad data. But he has two offsetting concerns that play to his views of July and possibly later meetings. The first is longer-term inflation expectations. Before the Michigan report, he said that the state of longer-term inflation expectations was a “negative factor” with respect to resuming normalization. True, he is not a fan of the Michigan (or any other) survey, but the Michigan survey will still weigh on his views about July, as well as September. However, he has made it clear that he would love to move in July if the data support it, specifically because July is a meeting without a scheduled press conference. In my view, his advice for the Committee was to get over it!