If a December rate hike by the Federal Reserve is looking less likely, it’s not because debate among policymakers has gone increasingly public in recent days, but because the economic data are shifting against those in favor of a move this year.
Figures on retail sales, producer prices and inventories released Wednesday all disappointed, suggesting weakness in inflation and third-quarter growth. Those come on the heels of a September jobs report that fell short of estimates and cautious comments by Fed governors Lael Brainard and Daniel Tarullo that argued for patience on liftoff.
“What’s new is just the way the data has come in,” said Mark Gertler, a New York University economist who has co- authored research with former Fed Chairman Ben Bernanke. “The data does tilt the committee toward waiting, there’s no question.”
Investors have cut the probability of a 2015 rate rise to less than 30 percent based on pricing in federal funds futures, down from around 60 percent a month ago, assuming the effective fed funds rate is 0.375 percent after liftoff.
Gertler and other economists leaned against the idea that remarks this week from the two Fed governors represented a new split among members of the Federal Open Market Committee or decreased the odds of a 2015 rate hike.
Brainard on Monday argued that persistently low inflation and a slowdown in China, among other factors, meant the Fed faced a greater risk of raising rates too soon than of moving too late. Brainard declined to say if she favored raising rates this year or next, though her comments were widely interpreted as making a case for delaying liftoff into 2016.
Tarullo, in an interview on CNBC, was even clearer, saying he’d rather wait until next year.
The remarks revealed a division between the pair of governors and Fed Chair Janet Yellen, who said last month she expected a rate rise would be warranted this year. That placed her among 13 of 17 committee members with that view, according to forecasts submitted by FOMC members for their Sept. 16-17 meeting in Washington.
In that meeting, the committee voted to leave the benchmark interest near zero, where it’s been since December 2008. Minutes of the gathering showed officials preferred to wait for more information to help gauge whether the slowdown in China would affect their outlook for U.S. inflation and growth.
The committee is scheduled to meet twice more in 2015. If the Fed is to raise rates this year, most Fed watchers expect it to happen in December.