Fed’s Comments
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee’s 2 percent objective over the medium term.
My Interpetation:
A few weeks ago Fed Chairman Powell submitted his semiannual monetary policy report to Congress. Mr. Powell voiced there was still a need for gradual rate hikes, despite the fact the economy was not overheating yet. I am a firm believer he has the constitution to carry out more rate hikes this year. The comment, “Economic activity will expand at a moderate pace” is a projection at this point. The Fed projects unemployment in 2018, 2019 and 2020 will reach 3.8 percent, 3.6 percent and 3.6 percent, respectively.
If the Fed believes these unemployment projections then it must practically hike rates multiple times to beat back inflation. If it waits until 3.6 percent unemployment materializes then it may be forced to hike rates aggressively which could push the economy into recession. Gradual rate increases ahead of inflationary pressure would appear to be a more balanced approach.
