Of­fi­cials sig­nal Fed closer to a rate hike

Nov. meet­ing hints that 1st in­crease in year is on hori­zon

Baltimore Sun - - HEALTH & STYLE - By Martin Crutsinger

WASH­ING­TON — Fed­eral Re­serve of­fi­cials ear­lier this month be­lieved it would be ap­pro­pri­ate to raise a key in­ter­est rate “rel­a­tively soon,” with some ar­gu­ing for a hike at the Fed’s meet­ing in De­cem­ber in or­der to pre­serve the Fed’s cred­i­bil­ity.

Min­utes of the Nov. 1-2 meet­ing re­leased Wed­nes­day show that Fed of­fi­cials were mov­ing closer to hik­ing rates for the first time in nearly a year. Some of­fi­cials ar­gued that if the Fed did not raise rates at its De­cem­ber meet­ing, it ran the risk of harm­ing the cen­tral bank’s cred­i­bil­ity given the many sig­nals it had sent about an im­pend­ing hike.

Pri­vate economists are fore­cast­ing that the Fed will Janet Yellen has said Don­ald Trump’s win hasn’t changed the Fed’s think­ing on a rate hike. boost its bench­mark rate by a quar­ter-point at its Dec. 13-14 meet­ing.

At the Novem­ber meet­ing, the cen­tral bank left its bench­mark rate un­changed in a range of 0.25 per­cent to 0.5 per­cent, where it has been all year. There had been lit­tle ex­pec­ta­tion of a rate hike then. Economists be­lieved that the Fed would not want to risk desta­bi­liz­ing fi­nan­cial mar­kets with a rate hike just be­fore vot­ers went to the polls.

The de­ci­sion was ap­proved 8-2. Fed­eral Re­serve bank pres­i­dents Es­ther Ge­orge of Kansas City, Mo., and Loretta Mester of Cleve­land dis­sented be­cause they fa­vored an im­me­di­ate rate hike.

The min­utes, which were re­leased with the cus­tom­ary three-week de­lay from the meet­ing, gave no in­di­ca­tion that of­fi­cials dis­cussed the pres­i­den­tial elec­tion.

In the pol­icy state­ment re­leased af­ter the meet­ing, the Fed dropped hints that it was mov­ing closer to a de­ci­sion to raise rates at its De­cem­ber meet­ing.

While the Fed’s dis­cus­sions oc­curred be­fore the elec­tion of Don­ald Trump as pres­i­dent, Fed Chair Janet Yellen in­di­cated last week that the elec­tion has not changed Fed think­ing on the tim­ing of the next rate hike. Yellen told the Joint Eco­nomic Com­mit­tee that the case for a rate in­crease has “con­tin­ued to strengthen and that such an in­crease could well be­come ap­pro­pri­ate rel­a­tively soon.”

The CME Group’s FedWatch barom­e­ter, which tracks in­vestors’ moves in the fu­tures mar­ket, puts the prob­a­bil­ity of a hike in De­cem­ber at 93.5 per­cent.

The Fed in­creased its bench­mark rate, the fed­eral funds rate, by a quar­ter­point last De­cem­ber, the first in­crease in the rate in seven years. At the time, the cen­tral bank pro­jected it would hike the rate an­other four times in 2016. But a sig­nif­i­cant slow­down in U.S. growth in the first half of the year, as well as global weak­ness and pe­ri­odic bouts of fi­nan­cial mar­ket tur­bu­lence, has kept the cen­tral bank on the side­lines.

Pri­vate economists are fore­cast­ing two more rate hikes in 2017, be­liev­ing that low in­fla­tion will al­low the Fed to stick to its in­ten­tion to move rates up at a grad­ual pace. But an­a­lysts con­cede that there is an un­usual amount of un­cer­tainty in the wake of Trump’s vic­tory. They say that those fore­casts could change if the eco­nomic en­vi­ron­ment changes un­der Trump.


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