The recent weakness in the job numbers and inflation report has so far failed to persuade the majority of the FOMC policymakers to shy away from the Fed’s current hawkish stance and the San Francisco Fed President John Williams is among those policymakers.

Speaking at an economic event in Sydney, the San Francisco Fed President indicated that his expectations over policy changes are in line with the current FOMC projections, which is one more hike this year, which will make it a third in 2017 and fifth since the ‘Great Recession’ of 2008/09 and the beginning of trimming of balance sheet. Speaking on Tuesday, Mr. Williams said that he believes that the recent softening in U.S. inflation is transitory and that inflation would pick up to around 2 percent over the coming year. Williams emphasized that if inflation did not accelerate as expected, that would argue for a much slower pace of rate rises than currently projected. His comments indicate that Fed is preparing for a beginning of the balance sheet trimming in the next few months.

Though Mr. Williams is not a voting member this year, what he is suggesting, have been suggested by voting members as well in recent weeks and months. Based on market expectations, we believe that the Fed would hike again in December while beginning the trimming process in September.