Enjoy it while you can. The next FOMC meeting is on May 3, two weeks from today. Fed officials observe a "blackout period" beginning one week in advance of the meeting and extending to the Friday after the meeting. You'll probably hear a number of FOMC members get their licks in before next Tuesday.
Today, it was Janet Yellen and William Poole.
San Francisco Fed President Janet Yellen said high energy prices may have created a soft patch by crimping consumer spending, while St. Louis Fed President William Poole said the economy is forging ahead and promises sustained growth.
Interviewed on CNBC, Yellen said "we're hitting something similar" to the conditions seen in the second quarter of 2004, when the pace of economic growth waned.
"We've had some recent readings on trade and retail sales that suggest maybe we had a soft spot in March," Yellen said. High energy prices "draw purchasing power away from a broad range of other goods and services."
Even so, the economy is still growing modestly above its long-term trend pace of 3.25 percent to 3.5 percent, "just enough to reduce labor market slack over time," she said.
Yellen, who leads the largest Federal Reserve district, was the first Fed official to address weak economic data that has jolted market expectations for Fed policy over the past few weeks.
Rate futures dealers, fearful of slower growth, see a chance that the Fed will pause its program of 25 basis point interest rate hikes as soon as August.
The Labor Department on Tuesday said March's core PPI rose 0.1 percent, below Wall Street forecasts. Headline prices jumped 0.7 percent, the biggest advance since October, as gasoline and heating oil prices jumped.
Poole and Yellen. both non-voters on the Federal Open Market Committee this year, said rising headline inflation recently showed a "pass-through" of energy prices but that long-term inflation prospects were sound.
"The outlook for inflation looks quite or very favorable," Poole told reporters after a speech on entrepreneurship. Tame labor costs and growing productivity were helping to keep a lid on inflation, he said.
Yellen said the energy price hikes would most likely also appear in indicators such as the consumer price index, due for release on Wednesday.
All in all, a very fair and even-handed assessment. And yes, tune in tomorrow for the CPI.
By the way, Mark Thoma has a post to St. Louis Fed President Poole's remarks.
"As we get into that (normal) range, policy will become increasingly data dependent," Poole said.
"Last year is the unusual period and you should not expect that as a pattern going forward ... Last year was the exception to normal practice," he said, referring to the predictability of Fed rate hikes after the central bank vowed to remove its policy accommodation "at a pace that was likely to be measured."
Flashback 1994-95: After a few 25 b.p. hikes, the FOMC alternated between doing nothing and raising the funds rate by 50 b.p. or more. In other words, the first few were pretty predictable. The next few, not so much.
I don't see any 50 b.p. increases around the corner, but alternating between doing nothing and 25 b.p. increases is not out of the question.
This assurance was repeated at the last Fed meeting, on March 22, but Fed-watchers expect it to drop the language in the months ahead.
Poole declined to speak directly to the issue of the language in the Fed's interest rate statement but made clear that he felt that all options were open.
As I reported previously, Poole elaborates on this point here.
Spelling it out, Poole said Fed rates could either rise, fall or stay the same, adding: "I want to be quite symmetrical about that" to emphasis that he was giving no more weight to one outcome than either of the others.
That is an interesting way to finish. Personally, I can't see a decrease (see above), but he might be preparing us for the possibility of it later in the summer or even fall.
Mark Thoma's take:
Thus the message is, beginning with the next FOMC meeting, not to expect a straight line path to the target Federal Funds rate.
My take, using my aviation analogy:
We're transitioning from the approach phase to the landing phase. The workload on the pilot just doubled. Fasten your seat belts.
In textbook terms, real GDP is approaching potential GDP from below. Overshooting will cause inflation and too much tightening will kill off the expansion prematurely. Rate movements are going to be very data dependent, much like the 94-95 soft landing. Prediction gets harder. Uncertainty abounds. People hang on every word of every news release, looking for something that will give them a clue of what will happen next. (It's the CPI tomorrow.)
I remember it well from 94-95. I was a first year grad student at the time and following this intensely. While some things are different, I notice a lot of similarities.
And people wonder why I find this stuff fascinating. How can anyone not be fascinated by it?
Yeah, how could they not be fascinated? I am!
I like this. Pull the stick up, pull it down, do the little corrections as needed, but stay on course on average.
The complication here is that the landing strip is an estimate and also a partly randomly moving target. So, if the estimate of the landing strip's position suddenly elevates or falls, then an immediate correction is needed, a control problem facing the pilot in addition to controlling the plane itself. In effect, a new path to the target must be chosen, a path that can be above or below the old path depending upon how the data on the landing strip's position changes over time.