Most Fed Policymakers Favor Delaying Further Rate Hikes

The U.S. Federal Reserve was quite active last week with several Federal Open Market Committee members offering their opinions on several hot topics including the number of potential rate hikes this year, market volatility and inflation. Sandwiched in between the Fed speakers and Fed Chairman Jerome Powell was the minutes from the December monetary policy meeting.

With Powell’s dovish message from January 4 still on the minds of traders and influencing the financial markets, the week began with comments from Federal Reserve Bank of Atlanta President Raphael Bostic. If you recall, Powell implied the possibility of pausing rate hikes for a time as Fed policymakers weigh the impact on the U.S. economy of weaker global growth and stock market weakness that have led to heightened volatility in the financial markets.

Fed’s Bostic Looks for Single Rate Hike

Bostic, one of the Fed’s more dovish policy makers, said the central bank should only raise interest rates once this year, but keep going with its plan to gradually shrink the balance sheet.

“Coming into this year, a year ago, I saw two moves for 2019. Right now, I’m at one move for 2019,” Bostic told the Rotary Club of Atlanta on Monday.

In his speech, Bostic also stressed the U.S. economy could do better, or worse than forecast. “If it’s an upside surprise, my prediction would be to go from one rate move to two, if it’s the downside it would go from one to zero,” he said.

Bostic also said, “This unwinding of the balance sheet is happening exactly the way we should do it.”

Fed’s Evans Suggests Central Bank Might Raise Rates

Chicago Fed President Charles Evans said, “If the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral rate – say up to a range between 3% and 3.25%.”

Fed’s Bullard Issues Warning

FOMC member and St. Louis President James Bullard told The Wall Street Journal that more interest rate hikes could push the economy into a recession.

The Fed is “bordering on going too far and possibly tipping the economy into recession,” he said.

“We’ve got a good level of the policy rate today,” he added.

Fed’s Rosengren Wants Clarity

Boston Fed President Eric Rosengren called for the central bank to move to the sidelines until it can justify the pessimism in the financial markets.

“If the economy continues to be resilient, one might expect financial markets to reprice if it becomes clear that risks had been overstated,” he said.

Summary

With the exception of Chicago Fed President Charles Evans, who came across as a tad hawkish, Bostic, Bullard and Rosengren were all in line with the minutes of the Federal Reserve December minutes which showed policymakers were willing to pause interest rate hikes given the volatility in financial markets and concern about global growth.