The more that Federal Reserve officials speak, the more confused investors and economists become.
Fed Governor Daniel Tarullo repeated his cautious assessment of the economy during an interview Friday on CNBC television, while Boston Fed President Eric Rosengren argued there was a reasonable case for gradual tightening. Their remarks, ahead of the Sept. 20-21 meeting of the policy-setting Federal Open Market Committee, illustrate divisions on the FOMC that don’t help clarify what officials will decide.
“Basically, everyone is staying in their lanes,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York. That makes it harder to gauge the implications of recent mixed data, including a below-forecast August US jobs report. “The Fed has been so arbitrary in shifting rationales, it’s not systematic enough that people in my business can look at the data and be confident about what the Fed’s going to do.”
Fed hawks and doves”•those who favor an interest-rate increase and those who argue against it, respectively”•are retrenching their positions and using recent data to bolster their arguments. Hawks say consumer spending is strong, the job market has made impressive gains and keeping rates too low for too long comes at a financial stability cost. Doves say employment could progress further, inflation has only ticked up and a handful of weaker-than-expected data points bolster the case for patience.
Investors and analysts still see relatively low chance that the Fed will raise interest rates this month.
On Friday, Tarullo signaled he’s willing to be patient before deciding the economy has enough momentum to raise interest rates, while declining to rule out the chance that he and his colleagues could move before the end of the year.
“I wouldn’t foreclose that possibility,” Tarullo said on CNBC when asked about a 2016 rate increase. “It’s important for all of us, in going into each meeting, to remain open to the possibility that momentum has changed, that expectations have changed, and thus for us to change our own views.”
At the same time, he emphasized that the labor market has been basically flat and inflation has only ticked up. He acknowledged that he was viewed as a member of the “show-me” camp inside the Fed, referring to those who want to see more evidence of inflation.
By contrast, Rosengren, who also votes on monetary policy this year, said “modest increases in wages and salaries seem to me consistent with tightness in labor markets beginning to appear more strongly in the wage data,” and “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”
Dallas Fed president Robert Kaplan also spoke Friday, saying that he still believes that data over the last several months have strengthened the case to raise interest rates, but the Fed can afford to be “patient and deliberate.”
While Tarullo and Rosengren’s stances aren’t new, they show that Fed voters are staying in their own camps”•dovish or hawkish”•in the run-up to the meeting.
“Typically, when the Fed is going to move, they’ll all come out singing from the same page of the hymnal,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. Still, Brown expects a rate increase in September, and noted that while Tarullo sounded dovish, he seemed on board to at least consider a rate increase.