I think the momentum evident in the second half of 2014 will carry over into 2015, and the ongoing outlook will remain solid.
If that is indeed the case, I believe the first action to raise interest rates will in all likelihood be justified by the middle of the year.
The phrase "middle of the year" is admittedly not very precise. That's purposeful on my part. Understandably, some financial market participants are fixated on what exact month the first move will occur. Perhaps it's easy for me to say, but I don't think the exact timing of liftoff is the most important concern. A couple of years hence, whether the first rate increase came at a particular meeting or anotherwhether a bit earlier or later than expectedisn't going to make a great deal of difference for the real, Main Street economy.
The key liftoff decision criteria ought to be closely linked to the FOMC's two principal policy objectivesmaximum employment and low and stable inflation. In my view, the biggest factor influencing the actual timing of a liftoff decision should be the Committee's confidence that these objectives will be achieved in an acceptable timeframe and, especially, that inflation will move at deliberate speed toward the target of 2 percent per annum.
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It's quite possible there will be considerable ambiguity in the picture presented by data in the first half of the year. Beyond the noise in inflation numbers, it's obvious there is simply a lot moving around at this timeoil prices, the dollar, even quarterly growth numbers, in all likelihood.
Noisy, jumpy data affect my confidence in the outlook. I'm likely to decide what policy decision to support based on where I think things are headed. When the numbers come in noisy, it's just harder.
If the early months of this year bring mixed news on the economy, the risk manager in me will lean to preferring a later date for the first policy move to an earlier one. That said, after six years of recovery and considering all that that has both transpired and been accomplished, I don't think we policymakers should get too rigid about liftoff a little earlier or later. My preferred timing may not be the Committee's consensus decision.
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At the recent meeting of the FOMC in December, the Committee made an adjustment of its forward guidance by introducing the theme of patience in beginning to normalize the stance of policy. I supported and expect to continue to support a patient approach, one that is relatively cautious and conservative as regards the pace of normalization of rates.