It seems Esther George (EG) and Loretta Mester (LM) are stand-ins for the departed Fisher and Plosser! Since they can´t play the role of “Inspector Clouseau”, let´s call them “Maggies in Drag”.
This balanced approach framework supports taking steps to remove the extraordinary amount of monetary accommodation currently in place. The next phase in this process is to move the federal funds rate off its near-zero setting. While the FOMC has made no decisions about the timing of this action, I continue to support liftoff towards the middle of this year due to improvement in the labor market, expectations of firmer inflation, and the balance of risks over the medium and longer run.
Most times in life, moving from extraordinary to ordinary is considered a bad thing. In the case of monetary policy, such a move should be viewed as a good thing – because it means conditions are in place for a sustainable economic expansion with maximum employment and price stability.
The Chair tries to “sooth them”:
I would be uncomfortable raising the federal funds rate if readings of wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken, if market-based measures of inflation compensation were to fall appreciably further, or if survey-based measures were to begin to decline noticeably.”
The underlying economy has been “quite weak by historical standards” and thus in need of low interest rates to sustain progress on unemployment; inflation remains very low; the risk that because of a stagnant global economy, the U.S. might not be able to bear very high interest rates in the future; the experiences of other countries with early rate increases, such as Japan and Sweden, point to caution; it pays for the Fed to take out “insurance” against a return to exceptionally low inflation and high unemployment by making sure with sustained low rates that the economy gets on a stronger track.
The chart shows important Yellen concerns. Core inflation and expected long-term inflation have mostly stayed well below target for the past seven years. Even the volatile headline measure has underperformed!
For the past five years, after “emerging” from the “Great Recession”, the economy has yet to find a “stronger track”.