If conditions hold, the opinion from some observers that the Fed will get caught in a “one and done” strategy for hikes would gain credence.
“Low inflation expectations may keep actual inflation lower, all else equal, making it more difficult for the Fed to return inflation to target,” Bullard said.
On Wednesday, Boston Fed President Eric Rosengren said in a speechgrowth appears to be slipping and that could force the Fed into a less aggressive rate-hiking posture. Rosengren and Bullard are voting members of the central bank’s policymaking committee.
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Finally, Chicago Fed President Charles Evans, a nonvoting member,said Wednesday the Fed probably should consider hiking only two or three times for 2016.
“From my perspective, the costs of raising the federal funds rate too quickly far exceed the costs of removing accommodation too slowly,” Evans said. “So taking both of these concerns into account — and considering how I think economic conditions will evolve over time — I believe that policy should plan to follow an even shallower path for the federal funds rate than currently envisioned by the median FOMC participant.”
The remarks have reverberated through the markets.
“Bottom line, while I so badly want interest rates to be normalized, if current trends in both the economy and markets continue, I don’t see it being realistic that the Fed hikes again and Rosengren and Bullard, both voting members this year, are already showing signs of wobbling in front of the dots,” said Peter Boockvar, chief market analyst at The Lindsey Group.