Greg Ip Says 4.75% Likely with More Possible

The Wall Street Journal's Greg Ip reports on the likely outcome of the next two monetary policy meetings after speeches today by Federal Reserve Bank presidents Yellen and Guynn:

Bernanke Is Expected To Follow Greenspan's Lead, by Greg Ip, WSJ: The Federal Reserve's first meeting under Ben Bernanke is likely to ...[be] another interest-rate increase with the door left open to more. U.S. and foreign economic growth are better than Fed officials expected a few months ago, and inflation, though steady, is at the high end of many officials' preferred range... Mr. Bernanke ... presides over his first policy meeting on March 27-28. At that meeting, the Fed is likely to boost its short-term-rate target to 4.75% from 4.5%.

Markets are counting on an increase at the March meeting and also put high odds on a boost to 5% at the May 10 meeting. Fed officials appear comfortable with those expectations, but don't have strong convictions. ... "During the past 20 months...the [Fed] was able to clearly communicate...the path of policy," Federal Reserve Bank of Atlanta President Jack Guynn said yesterday. "Our policy path over the coming period is somewhat less certain."...

Fed officials had expected the economy to grow strongly in the first half... However, growth has been a bit stronger than expected... In a speech yesterday, Federal Reserve Bank of San Francisco President Janet Yellen said unemployment at 4.8% raises the "question of whether the economy has already gone a bit beyond full employment." If so, with growth expected to exceed its long-run trend "in the first half of this year, the strain on resources could build further, intensifying inflationary pressures."

She added: "Additional inflationary pressures at this point would be particularly unwelcome, because inflation is now toward the upper end of my 'comfort zone.'" ... Still, Ms. Yellen said there are other indicators that suggest the economy still has slack in it, and she expects inflation "will remain well contained."

Mr. Guynn said the risks of weaker growth and higher inflation are "now close to being equal."...

Bloomberg has more on the speeches by San Francisco Fed president Janet Yellen (speech) and Atlanta Fed president Jack Guynn (speech). On Yellen:

"While we face a great deal of uncertainty, the economy appears to be approaching a highly desirable glide path," ... In comments similar to those she made three days ago, Yellen said she's "sensitive" to signs the Federal Reserve might "overshoot" by raising interest rates too much and is "looking for signs of the delayed effects on output and inflation"... "The most likely outcome over the next year or so is that inflation will remain contained," ... In response to questions after the speech, Yellen said she expects core inflation to move to the "center" of her preferred range and wages to remain steady. "I see growth slowing and the unemployment rate as stabilizing where it is," she said...