While the U.S. economic calendar last week was relatively light, the Federal Reserve members spoke at length over the week which stood out. Many members have maintained the view that the markets can expect another two rate hikes from the central bank this year.
Here’s a quick summary from various Fed officials who spoke during the week.
San Francisco Fed President, John Williams: Williams, speaking at the Forecasters Club of New York said that he expects a “relatively modest” boost to the economy stemming from Trump’s policies but cautioned that a bigger than expected boost to fiscal stimulus plans could push the economy to outperform.
As a result, he said that he expects “three to four rate increase total for this year or two to three more for the rest of the year.” Williams’ comments were quite hawkish as he said that there were clearly some upside risks to the economy.
On the labor market, Williams said that he was surprised by the strong pace of job growth in recent months. Williams said he expects the economy to add less than 100k jobs per month in the near term. “I still see us basically close to full employment,” he said.
Boston Fed President, Eric Rosengren: Rosengren was speaking to Bloomberg following a speech. He remained favorable towards more rate hikes noting that he expects four rate hikes this year as being seen as “gradual.” That is one extra hike than what the Fed has signaled so far.
Rosengren said that he was concerned with the valuations in the commercial real estate but added that it remained low by historical standards.
The Boston Fed president said that the U.S. economy was robust enough to digest four rate hikes.
Chicago Fed President Charles Evans: Evans said that an economy that can outperform growth and inflation is able to withstand a higher and steeper path of interest rates.
Evans, however, expressed concerns that inflation will continue to undershoot the target for the next few years, despite the overall outlook being slightly improved. The inflation along with the lower unemployment rate was the reasons he said that were supportive of the rate hikes.
FOMC Meeting minutes in focus
Coming up this week will be the meeting minutes from the March FOMC meeting which saw the Federal Reserve hiking the short-term interest rates to 0.75% – 1.00%. The meeting minutes will reveal and validate the speeches from the various FOMC members given last week.
It should be noted that at the March 2017 FOMC meeting, Neel Kashkari, president of the Minneapolis Federal Reserve voted to leave interest rates unchanged and was the lone dissenter. The March rate hike was well communicated, and the markets had priced in the rate hike ahead of time,
However, following the meeting, the U.S. dollar fell as Fed officials still maintained the view for just two more rate hikes during the year. The markets were expecting a bit more hawkish tone from the central bank officials.
That somewhat dovish narrative seems to have changed since most of the Fed members who spoke last week were supportive of seeing an additional rate hike this year.
The next FOMC meeting is due on May 2 – 3 but no changes are expected to the short-term interest rates, but focus turns to the June FOMC meeting, which is also followed up by a press conference. If the Fed does see merit in three more rate hikes this year, then the next likely FOMC meeting is the one in June.
However, as the Fed has maintained that rate hikes will be data dependent a lot will hinge on the inflation and unemployment prospects going forward.