Economist's Insights

Two Fedspeakers Describe Notably Different Outlooks

Nov 29, 2017

San Francisco’s Williams Expects the Fed to Keep Hiking: John Williams from the San Francisco Fed has become one of the most hawkish Fed voices as of late. Williams said his base case is for four hikes before the end of next year as a strengthening economy should lead to a pick-up in wages and inflation. He said he expects the unemployment rate will fall to as a low as 3.75% next year which should push wage growth above 3% and help drive an acceleration in broader inflation next year.

Kashkari Hosts Twitter Q&A: As he’s done frequently before, Minneapolis Fed President Neel Kashkari hosted an ad hoc Q&A on Wednesday to discuss monetary policy with his more than 20k followers (click here to view Kashkari’s Twitter feed). As to him potentially jumping on board with a December hike, Kashkari started by saying that while the Fed’s mandate is related to total inflation, core inflation is a better indicator of the more sustainable underlying trend. And if inflation keeps falling, he sees no reason to “tap the breaks” by raising rates. In a barrage of other tweets, Kashkari touched on a range of topics. He said the Phillips Curve makes sense conceptually but noted low inflation expectations could be affecting the relationship. He said the Fed should first show it can achieve its inflation mandate before even thinking about changing to a different policy framework, for credibility’s sake. He doesn’t expect negative rates in the U.S., but wouldn’t say “never”. He mostly dismissed the fact that tech was weighing on inflation because productivity was also low. He said it wasn’t the Fed’s job to protect investors when asked about how severe of a drop in the stock market the Fed could stomach without stepping in. He quipped that the dot plot should be called forward “mis”guidance because of the inherent uncertainty in monetary policy and economic projections. And he addressed the flattening of the Treasury curve as a current concern of his.