‘Many’ Fed mem­bers favour De­cem­ber rate hike

Oman Daily Observer - - FRONT PAGE -

WASH­ING­TON: US cen­tral bankers are sharply di­vided over whether to in­crease in­ter­est rates again this year amid per­sis­tently weak in­fla­tion, but many still favour a hike, ac­cord­ing to min­utes re­leased. Pol­i­cy­mak­ers also said the eco­nomic dam­age from back-to-back hur­ri­canes since Au­gust would likely be only tem­po­rary, ac­cord­ing to a record of the Fed’s most re­cent meet­ing last month.

The con­tin­u­ing dis­agree­ments among mem­bers of the Fed­eral Re­serve could leave in­vestors and mar­ket watch­ers guess­ing about the path of US mone­tary pol­icy in the wan­ing months of the year.

The Fed­eral Open Com­mit­tee, the Fed panel which sets US mone­tary pol­icy, has twice raised rates so far in 2017 de­spite the fact that in­fla­tion has re­mained tame in the face of steady job cre­ation and fall­ing un­em­ploy­ment.

Economists have been baf­fled by the cir­cum­stances and Fed mem­bers have dis­agreed since 2016 on the near-term threat that prices will rise and that the econ­omy will over­heat.

A ‘vo­cal mi­nor­ity’: The min­utes, which re­count dis­cus­sions among FOMC mem­bers at their on Septem­ber 19 and Septem­ber 20, showed such dis­agree­ments were no closer to be­ing re­solved de­spite the pas­sage of time.

At the Septem­ber meet­ing, the Fed left rates un­touched at their cur­rent range of 1 per cent to 1.25 per cent and fore­cast one fi­nal rate hike in 2017 as well as three more in 2018.

Ob­servers widely ex­pect that if the Fed chooses to adopt a third rate hike in 2017, it will do so at its fi­nal meet­ing of the year in De­cem­ber.

“There is a vo­cal mi­nor­ity that wants to see in­fla­tion rise be­fore hik­ing rates,” Chris Low of FTN Fi­nan­cial said in a note to clients.

“But the ma­jor­ity con­tin­ues to be­lieve a tight labour mar­ket will pro­duce in­fla­tion and the Fed must raise rates now (well, in De­cem­ber) to pre­vent in­fla­tion shoot­ing well past two per cent.” The min­utes said “many par­tic­i­pants” thought an­other in­crease in 2017 was “likely to be war­ranted.”

Rais­ing rates an “un­duly slow pace” could cause price pres­sures to spike and en­cour­age risk-tak­ing by in­vestors, they ar­gued, and de­lay­ing too long could force the Fed in the fu­ture to jack up rates sud­denly, harm­ing the econ­omy.

How­ever, the ac­count of the meet­ing made clear that an im­por­tant fac­tion of pol­i­cy­mak­ers still see no clear rea­son to act im­me­di­ately.

“Many par­tic­i­pants,” the min­utes said, be­lieved low in­fla­tion could be a longer-term trend. “And it was noted that some pa­tience in re­mov­ing pol­icy ac­com­mo­da­tion while as­sess­ing trends in in­fla­tion was war­ranted.”

A ‘SHAL­LOW’ RATE TRA­JEC­TORY : Among this group, a few be­lieved “no fur­ther in­creases” were called for, adding that “the up­ward tra­jec­tory of the fed­eral funds rate might ap­pro­pri­ately be quite shal­low.”

A key mea­sure of in­fla­tion that is closely watched by the Fed — track­ing per­sonal con­sump­tion but ex­clud­ing volatile food and fuel prices — has re­mained be­low the Fed’s two per cent tar­get for more than five years.

Ac­cord­ing to the min­utes, “a few” meet­ing par­tic­i­pants called for de­lay­ing rate hikes un­til eco­nomic in­di­ca­tors “con­firmed that the low read­ings on in­fla­tion this year were not likely to per­sist.”

Fol­low­ing the min­utes’ re­lease, fu­tures mar­kets re­mained largely con­vinced of a De­cem­ber rate hike but soft­ened marginally, with the prob­a­bil­ity of a hike fall­ing 1.1 per­cent­age points to 86.7 per cent.

FOMC mem­bers were not di­vided over how hur­ri­canes Har­vey, Irma and Maria, which tore a path of de­struc­tion through US ter­ri­tory be­tween Au­gust and Septem­ber, were likely to af­fect the econ­omy.

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