Part of the attraction of attending the Federal Reserve Bank of Kansas City’s annual Economic Symposium is the outstanding vista of the Grand Teton Mountains, right at your doorstep. At this year’s event, however, five long-burning fires around the area obscured
the fine views and closed the southern entrance to Yellowstone National Park. On occasion, though, the haze parted. The same could be said for the economic symposium itself, which was mostly devoted to implementing monetary policy in a post-crisis world. This discussion revolved around the mechanics of the money market and the appropriate size of a central bank’s balance sheet, thereby shrouding the conference room in a thick blanket of technical smoke.
The opening remarks by Chair Yellen, however, offered a clear glimpse of the foothills of Fed firming. As we have noted before, the operative model of Federal Open Market Committee (FOMC) functioning is one of delay at the top. Tightening has to be extracted from the reluctant chair by the rest of her restive committee. Yellen accedes, on occasion, because showing a willingness to tighten keeps her colleagues at bay. We believe the delay, however, will keep the funds rate lower for longer.