Federal Reserve policymakers often are separated along a spectrum that places the hawks, who are more concerned about inflation than growth, on one end and doves, who worry more about growth than inflation, on the other. The two extremes on that spectrum spoke today, but their caws and coos sounded a relatively similar song.

Dallas Fed President Richard Fisher, who as a voter on the rate-setting FOMC has dissented from every rate move that he has had a say in this year over inflation concerns, spoke to the Greater Houston Partnership, while San Francisco Fed President Janet Yellen, who isn’t an FOMC voter this year but is characterized as dovish, spoke to a community leaders luncheon in Utah. Both discussed the economic outlook.

The two presidents used nautical themes to illustrate the economy’s current path. “Regrettably, the nation’s economy has been in rough waters for over a year now,” Yellen said, while Fisher declared: “Having sailed the economy along for years in a tranquil following sea, we are now navigating Force 10 conditions.”

They agreed that as consumer spending becomes tepid and the economy continues to deal with the fallout from the credit crisis and housing downturn, growth will be weak into 2009. Both officials said that while inflation has run higher than the Fed would like, the coming slowdown and a resultant drop in commodity prices could reduce price pressures.

However, their major difference was the degree of confidence in that scenario. Yellen portrayed easing price pressures as the most likely outcome of the current situation. She pointed to contained inflation expectations, little evidence of rising wages and the likelihood that commodity prices will drop further. “If commodity prices keep falling — or even if they remain at current levels — the Fed’s objective of promoting both price stability and full employment will become more readily achievable,” Yellen said.

Fisher said that the view espoused by Yellen is one possibility, but posited another probable scenario, where price pressures felt recently by producers are passed through to consumers. “After companies have had their margins gutted by dramatic rises in their cost of goods sold, one can envision them being a little skeptical about the durability of recent price retrenchments in the commodities markets and taking advantage of every opportunity to buy protection from being victimized again,” he said. He was less convinced that inflation expectations are firmly anchored.

“While it seems pretty clear that economic momentum is slowing, the jury is out on whether lesser momentum will be sufficient to translate into relief on the price front over the intermediate to longer term,” Fisher said. “In East Texas parlance, ‘It might could, but it mightn’t'; it most definitely has not thus far.”

Both speeches indicated that the Fed remains in a difficult position, but the forecasts for weak growth and remaining inflation pressures suggest rates aren’t likely to move in any direction in the near future unless the landscape changes substantially one way or another in the coming months.

Fisher made clear that despite differences among Fed officials they have the same goal of noninflationary employment growth. “Neither I nor what commentators describe as my ‘less hawkish’ or ‘dovish’ colleagues feel that this convenient nomenclature does justice to our approach to policy,” he said. “The one thing we do not wish to become are pigeons.” –Phil Izzo