Here’s how Fed officials define ‘gradual’ rate hikes

For months, Federal Reserve officials have pledged that this rate hiking cycle will be gradual and data-dependent. After they finally lifted rates for the first time in almost a decade last month, market participants and economists have focused on just what that means.

This week, two policy makers have given us a few additional clues about the pace of tightening.

1. Gradual doesn’t mean lock-step. Based on comments from Chair Janet Yellen and others, we’ve known that the Fed is trying to avoid a predictable pattern of rate increases in this cycle. San Francisco Fed President John Williams said on CNBC that he expects three to five increases this year, provided the economy grows as he expects. “I don’t see the need to have rate moves at press conferences in the future,” Williams said, explaining that he isn’t thinking of increases as an every-other-meeting occurrence.

2. Data-dependent isn’t knee-jerk. The Fed is going to react to incoming economic data, but Cleveland Fed President Loretta Mester, who votes on policy this year, stressed that it’s the medium-term outlook, not near-term fluctuations, that will really matter.

3. All eyes are on inflation. The Fed is looking for signs that it’s meeting its dual mandate of stable inflation and maximum employment as it charts the course for rate increases. Price pressures have remained below the Fed’s 2 percent goal since 2012, and Williams made it clear while talking to reporters that they’ll be his focus this year.

4. Stock market volatility won’t alter the course. Fed officials made it clear that a start-of-year dip in the stock markets isn’t enough to shake their confidence in the U.S. economy and thus their outlook for policy.•