Last week, I discussed the views of 4 Federal Reserve presidents to discern their current interest rate policy.  This week’s column finishes that analysis.  I would like to offer a personal thanks to Minneapolis Federal Reserve president Neel Kashkari who responded to a Twitter question and pointed me to his latest essay on his policy stance.  Not only did it make my weekend, but in showed what a wonderfully powerful tool social media could be.

     In an online essay, Dallas Fed President Kaplan described a fairly healthy economy.  He sees a de-leveraged consumer was the primary driver of GDP growth.  He projects a slight increase in non-residential fixed investment.  Regarding the Fed’s goals, he noted that the U-6 unemployment rate was near its pre-recession low, indicating the labor market is near full employment. 

     And the Dallas Fed’s trimmed mean PCE is just below the Fed’s 2% target:

  

Here is his statement on monetary policy:

     Chicago Fed President Evans also believes the economy is near the Fed’s unemployment and inflation targets.  Consumer spending has been strong thanks to healthy balance sheets and strong job growth.  Business investment has been weak, but the strong dollar has lowered international demand (and therefore the need for domestic investment) while weaker oil prices have hampered the oil industry.  He also made a very interesting point: because we’re in a slower growth environment, the pace of rate hikes will be slower.  Put another way, slow growth means weaker prices pressures which implies a weaker pace of rate increases.  Here is his statement on the pace of rate increases:n

     Philadelphia Fed President Harker sees three rate hikes this year.  He sees the following labor market situation: “The unemployment rate has dropped to its lowest point in a decade, quits are up, and we’re starting to see upward pressure on wages. I estimate 2.5 to 3 percent wage growth this year, which is good. It’s what has been missing from this recovery.”  He also believes inflation is already near the Fed’s target.  Here is his statement on monetary policy:

     NY Fed President is also on the record for 2 more rate hikes:

     The lone dissenter from recent rate hike talks is Neel Kashkari of the Minneapolis Fed. He offered his reasoning in a recent essay.  First of all, he notes that most Fed governors are treating the 2% inflation target as a ceiling rather and the median estimate of prices.  He offered the following analogy:

This is a very important point, which I believe to be largely correct.  He also noted that other inflation measures – specifically expectations and labor costs -- are also contained.  And unlike other Fed governors, he believe there is sufficient labor market slack to warrant maintaining the current rate policy.  Here, he cites the employment to population’s ratio as evidence:

He also references the still high U-6 rate for support (however, see Dallas President Kaplan’s analysis above).  Overall, I would expect Kashkari to continue being the lone dissenter.

     A large majority of Fed governors are in the hawkish camp now.  Unless there is a fundamental change in the economy, expect at least 2 more rate hikes this year.