As I previously suggested would likely be the case, Dallas Fed Reserve Bank President Richard Fisher has joined with his Philadelphia Bank colleague Charles Plosser in dissenting from the policy statement as written. These FOMC members believe that the economic recovery places the Fed closer to its policy goals than the September statement would suggest, a sentiment I wholeheartedly agree with.
A refined set of principles for rate normalization. Finally, the FOMC clearly instituted a refined set of principles for the process of rate normalization, suggesting that normalization is very much part of its thought process today. This is despite Chair Yellen’s suggestion in the press conference that we should not take the policy normalization principles that way. Chair Yellen “doth protest too much, methinks,” on that count at least, to quote The Bard.
The upshot of all the above: The Fed is closer to its stated policy goals, and thus to rate normalization. I still believe that the Fed is likely to begin rate normalization sooner than many expect, possibly as early as March and very likely within the first half of 2015.
Though it’s important to note that while the Fed will likely move faster than many anticipate, given the pace of economic growth and its targeted objectives, the pace of normalization and the ultimate destination of rates will be slower and lower than in past hiking cycles.
The bottom line: I’ve grown skeptical of the utility of excessively low policy rate levels, so I’m optimistic that they will be gone sooner rather than later, particularly as the economy is on a solid path.
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog. You can find more of his posts here.