Salient to Investors:

  • Fed officials are approaching their goals for full employment and price stability faster than they had forecast. Most FOMC members believe the Fed will not raise its benchmark rate until 2015, with the median forecast calling for 1.13 percent at the end of 2015 and 2.5 percent at the end of 2016.
  • Charles Plosser at FRB Philadelphia believes the Fed risks losing credibility and control of inflation by waiting too long to raise rates, and says economic data already suggests a need to tighten.
  • James Bullard at FRB St Louis said inflation will rise above the Fed’s target in late 2015.
  • Charles Evans at FRB Chicago believes low inflation and labor-market slack means the Fed can wait until half2 2015 or 2016 to tighten, and expects the economy to grow at 3 percent rate or more for the next several quarters. Dennis Lockhart at FRB Atlanta agrees, saying the FOMC is short of the point where its goals of maximum employment and price stability are in sight, and cites very little upward wage pressure with considerable slack in employment markets. Evans sees inflation staying below the Fed’s objective for a few years, and said that low wage growth is one of many signs of continued resource slack. Evans expects the unemployment rate to fall less quickly in coming quarters. Lockhart sees a shadow labor market of people available for work but marginally attached to the labor force, and expects elevated levels of part-time workers to be absorbed as the economy strengthens.
  • Federal funds futures contracts indicate a 37 percent chance of a Fed rate hike by June 2015.

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