NEW YORK – Much attention will be paid to the Jan. 24-25 Federal Open Market Committee meeting as for the first time members will express their predictions regarding the future federal funds rate target.
While it is unexpected that any changes will be made to ease monetary policy, the projections for the fed funds rate, included in the quarterly Summary of Economic Projections, could provide some surprises, especially since the FOMC has already stated and reiterated a policy that rates will remain low through the middle of next year.
Economic indicators have been better of late, although housing indicators are still woeful, and labor markets remain weak.
Another variable is the roster of voters changes, with Dallas Fed President Richard Fisher, Philadelphia Fed President Charles Plosser, Chicago’s Charles Evans, and Minneapolis’s Narayana Kocherlakota no longer casting ballots, replaced by Cleveland’s Sandra Pianalto, Richmond’s Jeffrey Lacker, Atlanta’s Dennis Lockhart, and San Francisco’s John Williams.
Each of the members from last year dissented at least once, with Fisher, Kocherlakota and Plosser all voting against further accommodation in September.
What about the new voters? In recent statements Lacker said he does not believe there is a compelling case for more monetary stimulus.
Pianalto was not as clear, stating: “While it is true that the federal funds rate has been near zero for some time, some economic policy models indicate that monetary policy should be even more accommodative than it is today. And this is true even after accounting for the large scale asset programs the FOMC has initiated to compensate for the fact that the federal funds rate cannot go below zero.” She noted that she backed recent FOMC policy decisions “and there is evidence that they have been effective.” Yet, she said she would weigh any future actions.
Lockhart also left some wiggle room, saying he’s “skeptical” that further accommodation would help the economy, but said he's “open minded on the subject.”
Williams said he rues the “notably weak” recovery and the “shockingly high” unemployment rate. While he called for “tax and spending policies that work together with Federal Reserve programs to stimulate the economy,” he noted, “Lower interest rates alone can’t fix all the economy’s problems. But they do help.”