Much has been made of the implications of the 17 independent forecasts submitted by Committee participants, taken together. The number of interest-rate increases in 2016 implied by the median forecast drawn from participants' submissions was reduced from the December projection. In past communications, we emphasized that rates would likely rise gradually and, consequently, monetary policy would likely remain quite accommodative for some time. Now it appears the Committee has signaled an even more cautious and deliberate approach than that implied in December.
So what gives? Well, first, let me reemphasize a message frequently repeated in communications of the Committee. There is no pre-set path of policy decisions. There is no date-specific plan that the public could take as a committed course of action. Decisions to raise rates will be data-dependent. To my way of thinking, this means that at each decision point (each meeting), the Committee will reevaluate whether the real economy—the Main Street economy—remains on the assumed path to full employment and price stability. The Committee will consider information received since the last meeting and what that information implies for the outlook. And, importantly, the Committee will take account of the context of risks and uncertainties surrounding the outlook.
I would argue that the real economy—the Main Street economy—remains substantially on the path envisioned by Committee participants at the time of the liftoff decision in December. However, the context of risks and uncertainties has shifted somewhat. In my view, this explains the Committee's changed sentiment regarding the speed of normalization, the pace of rate increases.