CEA Chair Phelan: No Case for Half-Point Fed Hike in December, Contrasting With Waller and Logan
Key Takeaways
- •White House Council of Economic Advisers Chairman Christopher Phelan said conditions do not yet warrant a 50 basis point increase in the federal funds rate at the Federal Reserve's December meeting.
- •Phelan's stance runs counter to Fed officials Waller and Logan, with Bloomberg reporting that Waller supports a December rate hike and is open to a larger move.
- •Speaking from outside the rate-setting Federal Open Market Committee, Phelan used a Revolutionary War 'whites of their eyes' metaphor in a Bloomberg Television interview to explain why he sees no case yet for a bigger hike.
- •Cleveland Fed nowcasts as of November 10 revised the PCE deflator estimate up to 3.81% year-over-year, above the Fed's 2% target, and lifted the core PCE deflator estimate to 3.21%.
- •The Fed's December meeting is the next scheduled occasion for a federal funds rate decision and the immediate focal point of the disagreement over the appropriate size of any move.
Christopher Phelan, chairman of the White House Council of Economic Advisers, said there is no case for a half-percentage-point (50 basis point) increase in the federal funds rate at the Federal Reserve's December meeting, even given today's hot Consumer Price Index readings. His stance runs counter to that of Fed officials Waller and Logan, with Bloomberg reporting that Waller backs a December rate hike and is open to a larger move. As CEA chair, Phelan speaks from outside the Federal Open Market Committee, the Fed panel that sets the federal funds rate target and will make the December call.
Phelan, a former adviser to the Minneapolis Fed, laid out his position in an interview with Bloomberg Television:
"I've always followed the Revolutionary War doctrine of don't shoot until you see the whites in their eyes. The whites in their eyes for a 50 basis point increase, as far as I'm concerned, isn't there yet."
The commentary came alongside updated inflation nowcasts — running estimates of current price data published ahead of official releases — that pointed to firmer price pressures. As of November 10, the Cleveland Fed's nowcast for the personal consumption expenditures (PCE) deflator was revised up to 3.81% year-over-year from 3.77%, while the core PCE deflator nowcast moved up to 3.21% from 3.20%. At 3.81%, the headline nowcast sits above the Federal Reserve's 2% target for the PCE deflator.
Figure 1 charts the two price indexes alongside the November 10 nowcasts: the PCE deflator on a left log scale, with the nowcast marked by an inverted triangle, and the core PCE deflator on a right log scale, with its nowcast shown as an open square, all indexed to 2017=100. The nowcasts are based on year-over-year changes, with data from the Bureau of Economic Analysis and the Cleveland Fed.
The commentary and nowcasts appeared in a November 10 Econbrowser post titled "The Whites of Their Eyes." The author added that it remained unclear what would qualify as the "whites of their eyes" in the current inflation context, and closed by directing readers to market reactions. The Fed's December meeting is the next scheduled occasion for a federal funds rate decision, making it the near-term checkpoint for a debate now splitting a White House adviser from Fed officials over the size of any move.
