Fed to jack up rates as Trump econ­omy looms

Kuwait Times - - BUSINESS -

There is lit­tle room for doubt that the US Fed­eral Re­serve will raise the bench­mark in­ter­est rate in the com­ing week for only the sec­ond time in a decade. With un­em­ploy­ment at a nine-year low, jobs be­ing cre­ated at an av­er­age of 180,000 per month, the econ­omy grow­ing at bet­ter than three per­cent in the most re­cent quar­ter and some signs of a pickup in in­fla­tion, the writ­ing is on the wall.

Some mem­bers of the Fed­eral Open Mar­ket Com­mit­tee, which sets the key fed­eral funds rate, the ba­sis for mort­gage and lend­ing rates, have even cau­tioned that fail­ing to raise rates in De­cem­ber could harm the cen­tral bank’s cred­i­bil­ity, given ex­pec­ta­tions set by pol­i­cy­mak­ers in re­cent months.

“All the nec­es­sary and suf­fi­cient con­di­tions are there,” Mark Zandi, chief econ­o­mist at Moody’s An­a­lyt­ics, told AFP.

With a rate hike as­sumed, the ques­tion re­mains whether Wed­nes­day’s move will be the first in a se­ries.

That was what cen­tral bankers thought was go­ing to hap­pen a year ago, when they an­nounced the start of the “nor­mal­iza­tion” of in­ter­est rates af­ter keep­ing them at zero in the wake of the 2008 fi­nan­cial cri­sis.

‘Nor­mal­iza­tion’ un­der Trump?

But the Fed’s ef­forts to turn the page on mon­e­tary stim­u­lus with grad­ual tight­en­ing quickly went off track, de­spite fore­casts for up to four rate hikes in 2016.

Seven times this year, the FOMC de­clined to raise rates, im­peded by poor US eco­nomic data, Bri­tain’s shock June vote to exit the Euro­pean Union, and above all by fears of in­ter­rupt­ing a frag­ile re­cov­ery.

And an­a­lysts said there were no guar­an­tees 2017 would see the be­gin­ning of a tight­en­ing cy­cle ei­ther, given un­cer­tain­ties in geopol­i­tics and the yet-to-be-de­ter­mined poli­cies of Pres­i­dent-elect Donald Trump, who shocked the world last month by win­ning the US elec­tion while of­fer­ing pro­pos­als scant on specifics.

A Wall Street Jour­nal poll of econ­o­mists this week put the Fed­eral funds rate at an av­er­age of 1.26 per­cent by De­cem­ber 2017, im­ply­ing four rate in­creases. A Reuters poll projects three rate in­creases.

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.