Here's How Quickly Yellen Wants to Raise Interest Rates, According to a Former Fed Pol...

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Here's How Quickly Yellen Wants to

Raise Interest Rates, According to a
Former Fed Policy Maker
She sees one move this year although that view may shift to two by
September, ex-insider says
by Craig Torres
June 26, 2015 10:08 AM EDT

Federal Reserve Chair Janet Yellen.

Photographer: Andrew Harrer

Former Federal Reserve Governor Laurence Meyer has a guess at where Chair Janet Yellen's interest
rate forecast might be.
In what's become known as the "dot plot," Fed officials earlier this month showed the public their best
estimates for where the central bank's policy rate will be over the next few years. It's valuable
information for investors who are desperate to know how quickly borrowing costs will rise in the U.S.
What makes things tricky is that these dots are anonymous, and no one's views matter more than the
chair's.

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Enter Meyer, who was a Fed governor from 1996 to 2002 and is now senior managing director at
Macroeconomic Advisers. He's taken a stab at guessing which dots belong to whom (scroll down for the
chart). He estimates that Yellen in June foresaw a single rate hike this year. That would make her dot
one of five at 0.375 percent, which is below the median of her fellow Federal Open Market Committee
participants.
Meyer also expects her to change her view by September, by which point he expects to see an economy
on stabler footing.
In the chart below, Macroeconomic Advisers has assigned a policy maker to each dot. Some officials
have already made public their views. The darker dots denote the median estimate among officials for
each year. The median for 2015 was 0.625 percent, which would represent two hikes this year; and for
2016 it was 1.625 percent, representing four additional hikes.

Dark dots denote the median fed funds rate forecast of Fed officials
for each year. Check marks indicate policy makers who have already
made public their views.
Source: Chart and estimates from Macroeconomic Advisers, dots
from Federal Reserve Board

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After some disappointing numbers from the first half of this year, Yellen may have concluded that she
needed more time between June and September to be comfortable "that the economy had regained
sufficient momentum," he said.
That story is already changing, he said. Take this week's inflation data. The Fed has missed its inflation
target of 2 percent for the personal consumption expenditures price index for three years mainly due to
plunging fuel costs. Measures that eliminate prices that have shown extreme swings, such as the Dallas
Fed's Trimmed Mean PCE, don't show much price acceleration either with annual rates bouncing around
1.6 percent for the past 14 months.
Meyer said the committee is looking at gauges of inflation over a shorter horizon to get a better reading
on near-term price momentum as "temporary factors restraining" prices fade. Stripping away food and
energy and measured on a three-month annualized rate, so-called core PCE jumped higher to 1.6 in
May, after rising 1.3 percent in April.
What's more, consumer spending rose last month by the most in almost six years, a report on Thursday
showed.
"We expect the incoming data between now and the September meeting to help ease concerns about the
growth outlook, prompting Chair Yellen and a majority of the FOMC to see two hikes this year as
appropriate," Meyer said in a note to clients.

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