Thomas HoenigIn my opinion, there has been a discrepancy lately between the views of the FOMC members, as summarized in the Committee’s public statements, and the views of many financing market participants. Although there is a wide range of views in the market, some participants have jumped to the conclusion that monetary policy will be eased in the near future. Surveys of financial market economists show that many expect an easing in monetary policy sometime this year. In addition, the yield curve and financing futures prices incorporate some expected easing of monetary policy later this year.
In contrast, the FOMC has continued to express its concern about upside inflation risks. After its last meeting on December 12, the FOMC stated that “some inflation risk remain” and that “the extent and timing of any additional firming” would depend on how incoming data affected the outlook for growth and inflation.
In my view, the easing of monetary policy that market participants expect would be appropriate only if inflation clearly subsided from recent elevated levels, and if the incoming data implied the inflation outlook would remain favorable in the future. In my judgment, it is premature to conclude that current conditions define a clear path for policy.