Fed officials eye December rate hike
Chocking up employment losses last month to the temporary hit of a severe hurricane season and reiterating expectations that inflation will strengthen, US Federal Reserve policymakers signalled they continue to see gradual interest rate hikes ahead. “Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually,” said New York Fed President William Dudley.
Chocking up employment losses last month to the temporary hit of a severe hurricane season and reiterating expectations that inflation will strengthen, Federal Reserve policymakers signalled they continue to see gradual US interest-rate hikes ahead.
“Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually,” said New York Fed President William Dudley, whose regular meetings with Fed Chair Janet Yellen and constant contact with Wall Street banks bolster his influence among Fed policymakers.
While other policymakers largely agreed, they also said they were keeping a close eye on the data, particularly on inflation. And one offered a strong rebuttal, saying the central bank risked a “policy mistake” if it continues raising rates despite inflation data that remains stalled.
“If we go too far in our zeal to normalise (rates) we might push inflation expectations down further and that might hinder our ability to hit our target,” said St Louis Fed President James Bullard, who called the September jobs number “startling” even given the hurricane. “The December meeting is going to be too early to make a determination on whether inflation is coming back.”
Others were more on board with the December increase, though they also offered some scepticism about inflation. and hourly wages rose more
Atlanta Fed President than expected. Raphael Bostic, the newest of Striking a somewhat less the 12 Fed presidents, told eager tone than his colleagues Reuters in an interview that he though, Kaplan said, “I’m going continues to believe the US to watch a little bit here. We central bank should raise interest have the benefit of having a little rates again by the end of the time and I plan to take it.” year, though he is “not wedded” Last month, the Fed left to that position and continues rates unchanged and to track data closely. announced the welltelegraphed
And Robert Kaplan, chief of start to a gradual the Dallas Fed, told reporters shrinking of its $4.5 trillion balance that inflation is “likely building” sheet, which was swollen given the low unemployment by massive purchases of rate, which would make Treasury bonds and mortgagebacked the case for further rate hikes. securities in the aftermath Though the number of jobs fell of the 2007-2009 financial in September for the first time crisis and recession. in seven years, the unemployment But rate marketfell to expectations4.2 per cent are high that the Fed will hike rates again in December, especially after Fed Chair Janet Yellen outlined why she is fairly confident that inflation, now at 1.4 per cent by the Fed’s preferred measure, will rise toward the Fed’s 2per cent target over the medium term. It would be imprudent, she said in late September, to wait until inflation actually reached that target to raise rates.
Investors are more sceptical of the Fed’s forecasts of roughly three more hikes next year.
Three of the policymakers suggested they would be open-minded about the economic data, and especially inflation readings, for the next several months due to temporary factors weighing on prices and also the hurricanes that struck the United States over the last 40 days.
US President Donald Trump recently interviewed at least three candidates who could replace Yellen when her term as Fed chief expires in February, though he is also reported to be considering reappointing her. Trump said last week that he would have a decision in the next two or three weeks.
Bostic, who started his job four months ago and has a vote next year on the central bank’s rate-setting committee, said he expects the Fed, regardless of who leads it, to continue to raise rates in “a slow, steady return to more normal levels” in 2018, “absent some sign that either the economy weakens dramatically or suddenly, or if it accelerates faster than we might expect.”
Bostic said his economic forecasts do not include any changes to fiscal policy, in line with many of his colleagues.
Some Fed policymakers have begun to push back on the Trump administration’s assertion that its tax cut plan would boost the economy, cautioning it could instead trigger high inflation, unsustainable debt and an eventual return to subpar growth.
The proposed tax overhaul includes lowering the corporate tax rate to 20 per cent from the current 35 per cent.