It is also fair to say that the risks to my outlook are tilted to the downside. The nervousness in the financial markets and the increased caution that it may cause for economic decision-makers, both households and firms, could imply somewhat slower growth, at least in the first half of the year.
Also, inflation is not likely to pick up substantially until the second half of the year, although, for the reasons I have discussed, I remain confident that inflation will move toward the Committee’s long-run objective of 2 percent.
These considerations make me a bit more conservative in my approach to policy, at least in the very near term. Although I cannot give you a definitive path for how policy will evolve, it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike. Thus, I am approaching near-term policy a bit more cautiously than I did a few months ago. That is part of being data dependent. And attentiveness to the data will be a key factor in all of my future policy recommendations as well. If financial headwinds dissipate quickly and inflation picks up a bit more aggressively, it will require a slightly more aggressive approach to policy.
I believe as we move into the second half of the year with economic activity growing at trend or slightly above trend, the unemployment rate below its natural rate, and price pressures starting to assert themselves, policy can truly normalize. I mean this in the sense that we can move away meaningfully from the zero lower bound and that our reaction to incoming data can return to a more historical pattern.