Split Among Fed Speakers Leaves September Rate Outlook Murky

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The more that Federal Reserve officials speak, the more confused investors and economists become.

Fed Governor Daniel Tarullo repeated his cautious assessment of the economy during an interview Friday on CNBC television, while Boston Fed President Eric Rosengren argued there was a reasonable case for gradual tightening. Their remarks, ahead of the Sept. 20-21 meeting of the policy-setting Federal Open Market Committee, illustrate divisions on the FOMC that don’t help clarify what officials will decide.

“Basically, everyone is staying in their lanes,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York. That makes it harder to gauge the implications of recent mixed data, including a below-forecast August U.S. jobs report. “The Fed has been so arbitrary in shifting rationales, it’s not systematic enough that people in my business can look at the data and be confident about what the Fed’s going to do.”

Fed hawks and doves -- those who favor an interest-rate increase and those who argue against it, respectively -- are retrenching their positions and using recent data to bolster their arguments. Hawks say consumer spending is strong, the job market has made impressive gains and keeping rates too low for too long comes at a financial stability cost. Doves say employment could progress further, inflation has only ticked up and a handful of weaker-than-expected data points bolster the case for patience.

Investors and analysts still see relatively low chance that the Fed will raise interest rates this month.

On Friday, Tarullo signaled he’s willing to be patient before deciding the economy has enough momentum to raise interest rates, while declining to rule out the chance that he and his colleagues could move before the end of the year.

“I wouldn’t foreclose that possibility,” Tarullo said on CNBC when asked about a 2016 rate increase. “It’s important for all of us, in going into each meeting, to remain open to the possibility that momentum has changed, that expectations have changed, and thus for us to change our own views.”

At the same time, he emphasized that the labor market has been basically flat and inflation has only ticked up. He acknowledged that he was viewed as a member of the “show-me” camp inside the Fed, referring to those who want to see more evidence of inflation.


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