Fed governors brought some interesting comments overnight. San Francisco Fed Williams was the third governor openly advocating economic guideposts for when the Fed should consider raising rates. The subject was extensively debated at the September FOMC (as the Minutes showed), but no conclusion was reached as a further examination on all consequences of such a move was needed.
Williams suggested the Fed should keep rates very low until unemployment rate falls somewhat below 7% as long as inflation would not rise above 2.5%. Earlier, governor Evans advocated also the 7% for the unemployment rate, but with a higher tolerance for inflation (as long as inflation is below 3%). Minneapolis Fed Kocherlakota spoke about 5.5% unemployment rate and 2.25% inflation. According to Williams, a 5.5% trigger for unemployment rate was too low as it risked overheating, while also the 3% inflation was too high for him. Kocherlakota favours the publication of a collective economic forecast as a mean to help the public to understand Fed policy better.
Now, the Fed publishes individual forecasts. The debate on communication will continue at the October meeting, but it is unlikely to result already in decisions, as the presidential elections suggest the FOMC will keep low profile. Dallas Fed Fisher, a hawk who has currently no vote at FOMC meetings and is clearly no part of the strong majority that calls the shots, pleaded for an end of the Fed’s dual mandate and adopt an exclusive inflation objective. He still thinks QE-3 came too early and worries that ultimately inflation will be the result of the current policy.