Our headline could have easily replaced the headline above, from the Washington Post's interview with San Francisco Fed President John Williams. Reading this interview is like watching a magician perform tricks, all smoke and mirrors and sleight of hand.
Williams says something, takes it back, then dodges the question with a circuitous "on the one hand" that never truly resolves. Remember, Fed rhetoric has pivoted from hawkish (in December), to dovish (March), to hawkish (May), to dovish (June) and back to hawkish (July). So his view that Fed "strategy has not changed" is a tenuous argument at best. It's also worth noting that this is the same guy who forecasted up to 5 rate hikes in 2016. Also remember that what we've got so far is a big goose egg.
Here are two of the more elusive passages with no emphasis added because 90% of the statements are so obviously in conflict with each other...
Washington Post: So, just cutting to the chase here, does that gradual path of rate increases include any this year, in your view?
John Williams: In my view, it does. We’ve been adding enormous policy accommodation over the past several years. As the economy gets closer to its goals, we can again pull our foot off the gas a bit and hopefully execute a nice, soft landing over the next couple of years.
The challenge always is not only responding to your baseline forecasts but taking into account the various risks to the outlook. We think seriously about what’s happening globally. That has led to what I view as a little extra caution, a little more gradual pace of increases than I was thinking a year or so ago. That reflects a data-dependent approach to policy, but at the same time, fundamentally, the outlook hasn’t changed that much. We want to continue with a gradual path of increases. I don’t think that would interfere in any way with our growth continuing. That would not in any way stall the economy. I just think that would be consistent with the positive developments we’ve seen.
. . . .
Washington Post: Back in December, when we saw the first rate hike, the argument that you’re making is the one Yellen made for getting started. But that argument seems to have fallen by the wayside as we saw headwinds from China, from Brexit, you name it. I’m wondering if there’s a reevaluation of whether or not that’s the right way to go.
John Williams: I would disagree a little bit with your characterization that we’ve given up on that strategy. It’s not just a semantic issue.
The strategy has two elements. Our policy that we laid out given our forecasts and our expectations of where the economy was going is that we’d be gradually raising interest rates over the next few years, moving back to normal. So that’s the broad strategy.
But within that strategy, we’ve been highlighting that this is not a preset course. The specifics of when we raise rates -- the steepness of that slope, if you will -- will depend on progress we make on our objectives and also changes to our outlook.
I would say our strategy has not changed. I would say that what has happened since December is that numerous events have occurred that have made the tactical execution of that strategy flatter in terms of the interest rate path than I was expecting. Because we haven’t taken action to raise rates, it kind of looks like we’ve changed, but I don’t think we have.