Forecast came true

Split between hawks, doves to be evident in Fed minutes
6 october 2014


Philadelphia Fed’s Charles Plosser and Fed Chairwoman Janet Yellen

The Federal Reserve sent mixed messages at its policy meeting last month — keeping “considerable time” and “significant underutilization” in its statement while releasing a hawkish interest rate forecast for 2017.

This split is expected to be also clear in the minutes of the Fed meeting, will mainly highlight what hawks and doves on the Fed policy committee argue about when no one is listening. The Fed will release the minutes of its Sept. 16-17 policy meeting at 2 p.m. Wednesday.

The doves remain in charge for now, signaling no liftoff of short-term interest rates until mid-2015 at the earliest, but the voices of the hawks for an earlier move are getting louder, said Brian Bethune, chief economist at Alpha Economic Foresights.

Both Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher dissented from the policy statement in favor of a quicker rate hike.

Bethune said the minutes will be interesting to see if the hawks are starting to convince some other FOMC members.

Any whiff of compromise would be market moving.

Sal Guatieri, economist at BMO Capital Markets, said there would be a “hint” at a possible compromise: the doves might remove the “considerable time” if the hawks accept a phrase that suggests the Fed won’t tighten so long as there is significant slack in labor markets.

Other economists were more skeptical.

“My sense is the hawks are getting more airtime, but I don’t think the impact is going to be material until we get out of the fall,” Bethune said.

Hawks on the Fed likely argued that the labor market has shown tremendous improvement, said Carl Tannenbaum, chief economist at Northern Trust in Chicago.

Doves may skirt the issue by focusing on inflation. Actual inflation has remained well below the Fed’s 2% annual target and inflation expectations have fallen back. Market-implied inflation forecasts have taken a nose dive and are below the level that triggered Fed bond-buying, said Gennadiy Goldberg, a strategist at TD Securities.
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Split between hawks, doves to be evident in Fed minutes

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