Third ’17 Fed rate hike likely
washington — Federal Reserve officials generally believe that it’ll soon be time for another increase in the Fed’s key interest rate. However, a few felt any further rate hikes should be delayed until they see inflation moving higher, minutes of their last meeting revealed.
Minutes of the Fed’s October 31 and November 1 meeting showed that many officials believed a third rate hike this year will likely be warranted if incoming data leave the medium-term economic outlook unchanged. But “a few” officials remained worried that inflation has failed to accelerate toward the Fed’s two per cent goal as expected. They suggest that the central bank needs to remain cautious in pushing rates higher.
The Fed meets again on December 12-13, and private economists widely expect it will go ahead and raise rates.
“A December rate hike is still the most likely outcome,” said Paul Ashworth, chief US economist at Capital Economics. Ashworth said the minutes did show that Fed officials are still struggling to solve the mystery of why wage growth and underlying price inflation have remained so low with an unemployment falling so low. The minutes showed there is still a division between those who are worried the Fed might be moving too slowly amid low unemployment and those still concerned that inflation is falling short of expectations.
The central bank has raised rates twice so far this year, in March and June, pushing its benchmark rate to a still-low level of one to 1.25 per cent. But at three meetings since then, the Fed has left rates unchanged as officials debated the future course of inflation. The Fed’s goal is to manage the economy to promote maximum employment and stable prices, which it defines as inflation rising at an annual rate of two per cent.
For much of this year, inflation has been falling farther from the Fed’s goal. While Fed officials at first blamed temporary factors such as a price war among cellphone providers, the persistence of very low inflation has raised concerns that something more fundamental might be taking place.
The US central bank wants to keep inflation moving in what it considers an optimal level of around two per cent, which it believes signifies price stability. Inflation lower than that is seen as a sign of economic weakness.
In remarks at New York University on Tuesday night, Fed Chair Janet Yellen said that she and her colleagues are still concerned about the failure of inflation to make more progress moving toward the 2 percent goal. She called this “surprising” since the country is essentially at full employment, with the jobless rate falling in October to 4.1 percent, the lowest level in nearly 17 years.
“It may be that there is something more endemic or long-lasting here that we need to pay attention to,” she said. —