Fed con­fi­dent on US out­look, wary on in­fla­tion

The Pak Banker - - COMPANIES/BOSS -

Two Fed­eral Re­serve of­fi­cials said pol­icy mak­ers must watch the out­look for in­fla­tion as they con­sider when to raise in­ter­est rates again even as the U.S. econ­omy im­proves.

San Fran­cisco Fed Pres­i­dent John Wil­liams said Thurs­day that with the econ­omy strength­en­ing, "it just makes sense" to con­tinue grad­ual pol­icy tight­en­ing. At the same time, he ac­knowl­edged that over­seas head­winds had grown since the cen­tral bank in­creased rates in De­cem­ber for the first time in al­most a decade.

"There are big move­ments go­ing around in the global econ­omy and in­fla­tion that we have to ad­just to," he told re­porters af­ter de­liv­er­ing a speech in New York. The pol­icy-set­ting Fed­eral Open Mar­ket Com­mit­tee meets March 15-16. In­vestors see only a 10 per­cent chance it will hike next month, ris­ing to 24 per­cent in June. Wil­liams cau­tioned against ob­sess­ing over the de­bate around "should we raise in March or should we raise in June." Of­fi­cials must de­cide if do­mes­tic strength that drove the U.S. un­em­ploy­ment rate to 4.9 per­cent in Jan­uary will be suf­fi­cient to push in­fla­tion up to its 2 per­cent goal, overcoming head­winds from slow­ing growth abroad that has roiled mar­kets and oil prices that are down about 10 per­cent since the start of the year.

St. Louis Fed chief James Bullard said that the pickup in coreprices in Jan­uary was ev­i­dence that the FOMC's fore­cast for faster in­fla­tion was on track. He's re­fer­ring to the 2.2 per­cent yearover-year gain in the con­sumer price in­dex mea­sure that ex­cludes food and en­ergy costs. "That's good news in the sense that it fits with the com­mit­tee's nar­ra­tive on this," Bullard said dur­ing an ap­pear­ance on CNBC tele­vi­sion. "What's got me wor­ried is th­ese in­fla­tion ex­pec­ta­tions have fallen," re­fer­ring to mar­ket-based mea­sures de­rived from trad­ing in Trea­sury In­fla­tion-Pro­tected Se­cu­ri­ties, or TIPS.

Bullard, a vot­ing mem­ber on the FOMC this year, said he was open-minded about what the Fed should do in March: "I'll re­serve judg­ment about the meet­ing it­self be­cause we're not there yet and we've got more data to come."

In a speech Wed­nes­day evening, Bullard said it would be "un­wise'' to raise rates while in­fla­tion ex­pec­ta­tions were de­clin­ing, in a sign that he was in no hurry to tighten pol­icy.

Den­nis Lock­hart, head of the At­lanta Fed, also spoke Thurs­day and cau­tioned that ris­ing U.S. in­ter­est rates could un­der­mine bank prof­its while their ex­po­sure to com­mer­cial real-es­tate also re­mains a risk.

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