Must-Read: Tim Duy: Stanley Fischer and Lael Brainard Are Battling for Yellen’s Soul: “Stanley Fischer sits on Chair Janet Yellen’s left shoulder, muttering:

…we may well at present be seeing the first stirrings of an increase in the inflation rate…

Fed Governor Lael Brainard perches on the right, whispering:

…there are risks around this baseline forecast, the most prominent of which lie to the downside.

Yellen is caught in a tug of war between Fischer and Brainard. At stake is the Fed chair’s willingness to embrace a policy stance that accepts the risk that inflation will overshoot the U.S. central bank’s target. At the moment, Brainard has the upper hand in this battle. And she has a new weapon on her side: increasing concerns about the stability of inflation expectations….

Fischer’s not alone. In his group sit Federal Reserve Bank of San Francisco President John Williams, Kansas City Fed President Esther George, and Cleveland Fed President Loretta Mester. And Yellen is believed to be reasonably sympathetic to this camp. She’s repeatedly voiced her support of a Phillips curve view of the world—or the idea that, after accounting for the temporary impacts of a strong U.S. dollar and weak oil, inflation will rise as unemployment rates fall…. Indeed, a Phillips curve view is fairly common among monetary policymakers….

So, given the Phillips curve framework’s consistency among policymakers, why delay further rate hikes?… The challenge for further rate hikes is that recent financial instability has exposed the downside risks to the forecast… New York Fed President William Dudley, Philadelphia Fed President Patrick Harker, and Boston Fed President Eric Rosengren…. Financial instability certainly gives the Fed reason to stand still this week. And it gives reason for the Fed to continue to be cautious…