Fischer sided with Yellen, saying he believed the relationship between unemployment and inflation, which holds that lower joblessness will eventually boost wages and spur bigger increases in prices, will reassert itself.
The so-called Phillips Curve relationship will “be back,” he said.
Answering questions from reporters, Dudley said the decline in inflation expectations recorded in the New York Fed’s consumer survey is a little concerning, and is corroborated by a University of Michigan survey which shows a similar trend. While he described expectations as still well-anchored, he acknowledged that they were near the bottom of recent ranges, and a further decline would raise the level of concern.
While Gapen said a December hike is now the Fed’s “base case,” Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, disagreed.
More Improvement
“The economy has to show further improvement for Yellen to actually steer the committee to December liftoff,” Rupkey said. “They have put the market on notice, but now the economic data has to cooperate or they may very well delay the 2015 liftoff into early next year.”
Economic growth slowed to a 1.5 percent annualized pace in the third quarter, according to the government’s advance estimate on gross domestic product. However, inexpensive gasoline prices, low unemployment and income gains are projected to sustain spending.
The pace of growth will quicken to a 2.7 percent rate in the final three months of the year, according to economists surveyed by Bloomberg.
Fed officials’ last meeting of the year will be held Dec. 15-16, and it includes a press conference with Yellen and a new set of forecasts from policy makers.