By Shayndi Raice
Federal Reserve Chairwoman Janet Yellen is starting the year leading a central bank largely unified in expectations of a gradual series of interest-rate increases, though they aren't hinting when they are likely to move next.
The harmony reflects a return to normal monetary policy in a stable economy after years of contentious debates over the unconventional tools used by the Fed during and after the recession.
Five of the 12 regional Fed presidents have said in the past week they see between two and four quarter-percentage-point rate increases this year, and most of them said they were comfortable with the possibility of three. That fits with projections the Fed released last month and reflects a shared view that the recovery is on track, with low unemployment, moderate growth and rising inflation.
"I see three modest hikes as appropriate for the coming year, assuming the economy stays on track," said Philadelphia Fed President Patrick Harker, in a speech in Malvern, Pa., on Thursday.
The current consensus contrasts sharply with the heated debates detailed in transcripts of the Fed's 2011 policy meetings, released Thursday.
In 2011, the recession had ended but the recovery was sluggish and fitful. Fed officials were experimenting with new and largely untested tools, including holding interest rates near zero for the year and buying bonds to lower long-term interest rates.
While they agreed to let their second bond-purchase program expire, they were divided over whether they might have to launch another round to spur a weak economy. They did later launch a third round.
In August 2011, three officials dissented against the Fed's statement that it expected to hold rates near zero through at least mid-2013 -- the most negative votes that then-Chairman Ben Bernanke had faced as Fed chief. The dissenters didn't want to promise to hold rates so low for so long, but another official intended to dissent if they didn't include the pledge.
Mr. Bernanke offered various alternatives designed to reduce the number of dissents. Ultimately, none was successful, but the extent to which Mr. Bernanke went to try to bring the dissenters on board was previously unknown.
"It would be very unpleasant to have three dissents, but I guess if that's where we end up, that's where we end up," Mr. Bernanke said at the time.
The Fed ended up leaving rates near zero until December 2015, when it raised its benchmark federal-funds rate by a quarter percentage point to between 0.25% and 0.5%. Officials left the rate there until last month, when they voted unanimously to lift it by another quarter point.
At their mid-December meeting, the officials' projections showed the policy question for this year was going to be when to raise rates, not whether. Their median forecast was for three quarter-point moves this year.
Chicago Fed President Charles Evans said Thursday three moves were "entirely plausible" if the economy was strong enough. Atlanta Fed President Dennis Lockhart reiterated a view that he expected about two increases. Dallas Fed President Robert Kaplan, also Thursday, agreed that three rate rises would be justified if the economy continued its progress. St. Louis Fed President James Bullard stuck with his position that he expects just one rate increase.Cleveland Fed President Loretta Mester said last week that a projection of three increases is "very reasonable."
The officials Thursday largely offered an upbeat view of the economy. Several mentioned winding down the Fed's $4.5 trillion balance sheet as interest rates return to more normal levels. Some also noted they saw little risk of recession right now.
"A cyclical recovery has largely been completed" and a "gradual rate increase path" is likely for the year, Mr. Lockhart said.
The current consensus comes after a year in which Fed officials had to continually adjust their plans in response to unforeseen events. They started 2016 thinking they would raise rates four times this year. In the end they only moved once, in December.
Officials could change their views again. Several Fed officials said theirs could shift this year depending how much fiscal stimulus Congress enacts.
--Michael S. Derby, Katy Burne, Adam Creighton, Dan Molinsky and Joshua Zumbrun contributed to this article.
(END) Dow Jones Newswires
January 12, 2017 19:35 ET (00:35 GMT)
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