Fed President Neel Kashkari criticizing the recent FOMC decision - Nomura

Analysts at Nomura offered a review of the Fed Speak overnight.

Key Quotes:

"During this morning’s round of interviews, Minneapolis Fed President Neel Kashkari reiterated points he made last week in a Medium post criticizing the recent FOMC decision to move forward with increases in the targeted range of the federal funds rate (he was the lone dissent in the 9:1 decision). He voiced concern that gaps remain between key economic indicators and the FOMC’s goals. These include core inflation, which remains below the FOMC’s objective of 2%, and an elevated level of underemployed labor (U6). In addition, he commented that growth has remained weak— implying the impact of accommodative policy remains moderate. 

In terms of the balance sheet, he expressed a preference for establishing a plan for the Fed’s adjustment plan before any further rate increases. Philadelphia Fed President Patrick Harker indicated a preference for three hikes during 2017 and also acknowledged uncertainty regarding fiscal policy during an interview on CNBC. 

Additionally, Chicago Fed President Evans said "even 2.5% inflation for a time is consistent with our symmetric inflation objective." Based on Evans’ remarks, even though he thinks that three rate hikes this year could be possible, he might not accelerate his expected path of federal funds rate unless (core) inflation exceeds 2.5%. He seems to still stick to some sort of an "Evans Rule" which used to describe the Fed's forward guidance on the policy rate. 

Note that in December 2012, the Fed announced that it would keep the federal funds rate low either until unemployment falls below 6.5%, or inflation rises above 2.5%. The remarks today indicate that while a select few members prefer more gradual tightening policy, FOMC consensus remains at three total hikes for 2017 and that core inflation readings in the coming months will be increasingly important."

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