As signs of faster U.S. inflation boost financial market expectations for three or even more interest rate hikes this year, some U.S. central bankers are sticking to their view that aggressive policy tightening is unnecessary.
"I believe the Federal Reserve should be gradually and patiently raising the federal funds rate during 2018," Dallas Federal Reserve Bank President Robert Kaplan said in an essay released on Wednesday that updated his views on the economic and policy outlook.
Kaplan's views often closely mirror those of core Fed policymakers, who in December signaled they expect to deliver three rate hikes this year after raising rates three times last year.
At the time, Wall Street was not fully convinced of the need for such a pace. But a government report earlier this month showing wages rose a searing 2.9 percent in January solidified those expectations and has even pushed some analysts to forecast four rate hikes for this year.
Investors are looking to the release later Wednesday of minutes of the Fed's January policy-setting meeting for guidance. They will look for the level of conviction policymakers have on their rate-hike views, and how much credence they give signs of a firming of inflation even as unemployment, at 4.1 percent, plumbs a 17-year low.
Though Kaplan did not specify the number of rate hikes he feels would be appropriate this year, he warned that waiting too long to raise rates could allow financial imbalances to build, forcing the Fed to raise rates rapidly and tipping the economy into recession.
His more dovish colleague, Philadelphia Federal Reserve Bank President Patrick Harker, said in a speech in St. Louis that he has penciled in just two interest-rate hikes for this year, though he signaled he is open to more if needed.
And Minneapolis Fed President Neel Kashkari, interviewed on Bloomberg TV on Wednesday, took aim at market expectations directly, saying that while Wall Street "overreacts to everything," the Fed should not.
Kashkari dissented on every Fed rate hike last year. While he does not have a vote on the central bank's policy-setting committee this year, he has signaled he wants the Fed to keep rates steady and allow labor markets to tighten further.