Two influential Federal Reserve policymakers on Friday reinforced Fed Chair Janet Yellen’s message that an interest rate hike is coming by year’s end.
Meanwhile one of the Fed’s most dovish policymakers appeared to soften his opposition to that timing, a subtle shift that could pave a smoother way to the Fed’s first rate hike in nearly a decade.
To be sure, New York Fed President William Dudley and Dennis Lockhart of the Atlanta Fed, speaking separately in New York, appeared doubtful they would have enough information in hand to lift rates by an Oct. 27-28 policy meeting, suggesting the Dec. 15-16 meeting is more likely. They also clearly left the door open to waiting until 2016 if it looks like the U.S. economy is threatened by a global slowdown.
“Based on my forecast, yes I am” expecting to raise rates this year, said Dudley, a close ally of Yellen who has a permanent vote on policy.
“But it’s a forecast, and we’re going to get a lot of data between now and December. So it’s not a commitment,” he said on CNBC TV. “There certainly is a risk that the economy evolves in a very different way than I expect, and obviously it would be totally inappropriate for me to not take that into consideration.”
Chicago Fed Chief Charles Evans, who has long said he views waiting until mid-2016 a more “appropriate” approach, for his part downplayed the importance of the timing of liftoff so long as the Fed takes rates up very slowly.
“The precise timing for first increase in the federal funds rate is less important to me than the path the funds rate will follow over the entire policy normalization process,” he said, suggesting the rate may need to still be below 1 percent by the end of next year.
The central bank held off on a rate hike last month in the face of a slowdown in China and elsewhere, financial market turbulence and falling commodity prices. All of those could keep U.S. inflation, now at 1.3 percent, below the Fed’s 2 percent target.