In a surprising turn that showed the diversity of views on lifting timing, Governors Lael Brainard and Daniel Tarullo made clear on successive days in mid-October they preferred to wait until 2016 for a rate increase.
That sent expectations for a December increase plunging to as low as 27 percent on Oct. 14, from 64 percent on Sept. 16, according to fed funds futures. The calculation is based on the assumption that the effective rate will rise to 0.375 percent after liftoff.
Confused Message
Mark Gertler, an economics professor at New York University who has published research with former Fed Chairman Ben S. Bernanke, said that while the FOMC could have been clearer in its communication, most of the confusion is the result of economic data that’s made the Fed’s decision-making difficult.
Recent figures on jobs, manufacturing, retail spending and exports have disappointed, while new jobless claims and most housing data have been decidedly positive.
“They’re getting different interpretations because the data isn’t lining up perfectly,” Gertler said.
Gertler also argued that too much weight has been given to Brainard’s and Tarullo’s remarks.
“Any experienced Fed watcher will know there’s a center of the committee and there’s going to be people on either side. The center is Yellen, Dudley and Fischer,” he said. “Certainly there’s an opportunity to clarify what’s going on” this Wednesday.
Whether the confusion is the fault of the committee, economic data or investors, Fed officials felt compelled in October to go back on their own decision to avoid any specific signal ahead of a possible rate hike.
Minutes of the April FOMC meeting show “participants discussed the merits of providing an explicit indication, in post-meeting statements released prior to the commencement of policy firming” before rejecting the idea.