Many observers are puzzled. The last FOMC meeting showed three regional presidents felt sufficiently convinced of the need to hike rates immediately that they chose to dissent.  

On the other hand, the dot plots showed three officials did not think a hike this year is warranted. There is some speculation that one or two of these dots belonged Federal Reserve Governors (Brainard and/or Tarullo). The perception is that a Governor dissent is less common and is more significant than dissent from a regional Fed President.  

The Fed’s leadership faced a dilemma in September, and this dilemma has been expressed a “close call.” Essentially, the choice was between which set of dissents are more acceptable. In this narrative, Yellen chose to face the regional President’s dissents, and we suspect allowed for a higher number of dissents to also underscore the knife-edge decision.  

Nevertheless, the arguments of those who do not think a hike is appropriate this year, especially if they have been articulated by Governors, need to be addressed. It is in this context that Yellen and Fischer’s recent comments need to be understood. In their own ways, they both argued against the arguments that suggested to wait for inflation to be at the target before raising rates or raising the inflation target.  

Yellen, showing respect for the other argument, said last week that it is plausible (meaning arguably by reasonable people) that holding the rates lower for longer will help further the recovery. The loss of aggregate demand reduced economic capacity.Letting the economy run hotter may help ease the supply-side restraints. This is apparently where many lost interest. Yellen went on to talk about the risks of what she called a “high-pressure economy.”   

Fischer, in his own style, picked up on this sentiment yesterday. His comments were more pointed than Yellen’s which is why some observers see it as divergent. As the elder statesman,he cautioned against such ideas as waiting until inflation rises to or through its target before removing some accommodation.He says it would be too late. Monetary policy impacts with a lag.