US Federal Reserve hints at four interest rate rises in 2016

INTEREST rates in the United States could rise four times this year following the first hike in nearly a decade last month, a senior central bank official said.

Stanley Fischer, vice-chairman of the Federal Reserve, said forecasts predicting four rate rises in 2016 were ‘in the ballpark’ of what he expects.

The Fed raised rates from close to zero to 0.5pc last month – the first rise since 2006 – although documents released last night showed for some officials the decision to raise rates ‘was a close call’.

Four rate rises this year could take rates to 1.5pc. That could leave them higher than in the UK where the Bank of England has frozen rates at 0.5pc since March 2009. Analysts at Bank of America Merrill Lynch said they expect the first rate rise in Britain to come in November instead of May.

Robert Wood, UK economist at the bank, put the delay down to ‘softer’ wage growth and uncertainties surrounding the in-out referendum on Britain’s membership of the European Union. ‘We leave our call for three hikes in 2017 unchanged,’ he added.

That would mean rates in the UK reaching 1.5pc by the end of next year – some 12 months later than in the US. Fischer conceded uncertainty in China is rising but downplayed the impact on the US economy. ‘For the United States, direct links with China are much less important than the role of China in the world,’ he told CNBC. ‘If all China’s neighbours and other large parts of the world are negatively affected to a considerable extent by China, then that would be an impact. The rest of the world matters for us. If it was only China, it would still matter, but a good deal less.’

Minutes from last month’s Fed meeting, led by chairman Janet Yellen (pictured), showed officials were ‘now reasonably confident’ inflation would rise back to the 2pc target in the coming years. But ‘some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation’.

Global turmoil and uncertainty in China forced the Fed to postpone its long-awaited rate hike from September to December. ‘We waited, looked around, saw that it hadn’t had a huge effect and made the move at the next suitable occasion,’ said Fischer.