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 That shift, and the very real possibility that Fed Chair Janet
Yellen may be one of the five who now prefer a single rate hike in
2015 rather than among an equal number who prefer two, is bolstering
the view that the Fed may not deliver until late in the year.
The Fed has kept interest rates near zero since December 2008, and
on Wednesday unanimously voted to keep them there. Behind that
unanimity rages a debate over how long that state of affairs should
last.
"While we cannot be certain, our best guess is that Fed Chair Yellen
now anticipates only one increase this year - an important shift in
the committee’s center of gravity," Goldman Sachs economists Jan
Hatzius and Zach Pandl wrote in a note advising clients they now
expect the Fed to wait until December to raise rates, from September
previously.
“If Yellen is in the one-hike camp, she is the decider, and the
other governors will likely vote in deference to the chair,” said
Kevin Logan, chief U.S. economist at HSBC Securities, which also
expects the Fed to hike rates only once this year, in December.
New forecasts from the Fed's 17 policymakers released after the
central bank's policy-setting meeting this week suggest four
officials who in March recommended two rate hikes this year now want
only one.
Although the Fed does not identify whose forecast is whose, an
examination of recent comments by Fed officials strongly suggests at
least two of those who prefer two rate hikes are on the Fed's
powerful five-member Board, while at least two shifted to a
one-rate-hike view.
That's notable because the Fed governors typically vote as a block,
standing with the chair.
An unexpectedly weak first quarter may have caused a few officials
to blink, putting data in coming months, particularly on job
creation and inflation, newly front and center.
Those eyeing a hike this year will be looking for a continuation of
blowout data that saw the U.S. economy create 280,000 jobs in May..
Logan and other economists said that dovish speeches earlier this
month by governors Lael Brainard and Daniel Tarullo suggest one or
both made the move to supporting just one rate hike in 2015. The
influential head of the New York Fed, William Dudley, also sounded
cautious tones in a speech this month, so he could have jumped ship
too.
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Some economists believe the fourth official to newly join the
one-hike camp was Atlanta Fed President Dennis Lockhart, who has
said he would like to see more evidence of economic momentum before
supporting a rate hike.
But to other economists, the argument that it is Yellen is more
compelling. In a news conference following the Fed's meeting, Yellen
described a labor market that in her view is still cyclically weak,
and said that while "we could certainly see data that would justify"
a rate increase this year, there are no guarantees.
Contrast that with her comment in May that "if the economy continues
to improve as I expect, I think it will be appropriate at some point
this year to take the initial step to raise the federal funds rate
target and begin the process of normalizing monetary policy."
The forecasts released on Wednesday showed a third set of five
policymakers preferring three rate hikes this year, but these are
likely all presidents of regional Fed banks who are not typically
part of the decision-making core at the central bank, economists
parsing the so-called dot chart say. Two other policymakers, both
Fed bank presidents, prefer no rate hikes this year.
The forecasts continue to suggest that the center of the committee
is still pulling for two hikes this year. But "uncertainty is very
high,” said Diane Swonk, chief economist at Mesirow Financial, in
Chicago. “The threshold on liftoff is low, but the decision to raise
rates a second time is very high.”
(Reporting by Ann Saphir, Jonathan Spicer and Howard Schneider;
Editing by Andrea Ricci)
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