Fed tipped to act soon

> US cen­tral bank says case for rais­ing in­ter­est rates stronger but wants to see fur­ther eco­nomic progress first

The Sun (Malaysia) - - SUNBIZ -

WASH­ING­TON: The US Fed­eral Re­serve said on Wed­nes­day the case for rais­ing in­ter­est rates has strength­ened fur­ther with im­prov­ing eco­nomic con­di­tions, but mon­e­tary pol­i­cy­mak­ers de­cided to wait for more progress be­fore act­ing.

Just a few days be­fore the bit­terly-con­tested pres­i­den­tial elec­tion, the US cen­tral bank kept the bench­mark in­ter­est rate at the same level where it has been since De­cem­ber 2015, a move uni­ver­sally ex­pected by an­a­lysts.

How­ever, the Fed, while not ex­plicit on the tim­ing, left the door open to a rate hike soon, pos­si­bly in the next meet­ing on Dec 13-14. But an­a­lysts were di­vided over how to in­ter­pret the hints given by the Fed­eral Open Mar­ket Com­mit­tee (FOMC), the Fed’s mon­e­tary pol­icy arm.

The key rate has been at 0.25-0.5% for nearly a year, after spend­ing the years since the 2008 cri­sis at zero. The rate is the bench­mark for many types of credit, in­clud­ing home mort­gages and car loans.

Early this year the cen­tral bankers said they ex­pected sev­eral rate cuts be­fore 2017, but have held off over con­cerns of de­rail­ing a frag­ile eco­nomic re­cov­ery.

Two FOMC mem­bers dis­sented on the de­ci­sion, favour­ing an im­me­di­ate rate in­crease: the Fed­eral Re­serve Bank pres­i­dents of Kansas City, Es­ther Ge­orge, and Cleve­land, Loretta Mester. In Septem­ber there were three dis­sents.

Their pol­icy state­ment noted con­tin­ued im­prove­ment in the labour mar­ket and eco­nomic growth, as well as slight in­creases in in­fla­tion, a key fo­cus of the FOMC.

“The Com­mit­tee judges that the case for an in­crease in the fed­eral funds rate has con­tin­ued to strengthen but de­cided, for the time be­ing, to wait for some fur­ther ev­i­dence of con­tin­ued progress to­ward its ob­jec­tives,” the FOMC said.

Many econ­o­mists be­lieve there is a strong chance the Fed fi­nally will raise rates at the De­cem­ber meet­ing, when it will have the ben­e­fit of two more months of in­fla­tion and em­ploy­ment data – not to men­tion the out­come of the elec­tion.

“We fully ex­pect this ev­i­dence to emerge over the next six weeks, so only a shock – the elec­tion of (Don­ald) Trump, or an ex­ter­nal geopo­lit­i­cal or mar­ket event – can now pre­vent a De­cem­ber hike,” Ian Shep­herd­son of Pan­theon Macroe­co­nomics said in a re­search note.

How­ever, Ja­son Schenker of Pres­tige Eco­nom­ics said “there was no sig­nal of an im­mi­nent rate hike for De­cem­ber.”

And Jim O’Sul­li­van of High Fre­quency Eco­nom­ics said the Fed did not “send any de­fin­i­tive sig­nal in the state­ment about De­cem­ber.” – AFP

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.