An unusually public rift between the Fed chair and two governors is adding to an already confused policy message that has been hurting the central bank’s credibility with markets. “Right now, politics aside, I think these Fed members live by their econometric models and that’s what they’re abiding by”.
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Federal Reserve policymakers are not as divided as it may appear and are generally operating under the same framework for determining when to raise interest rates, one Fed official said on Thursday, while another said the differences of opinion reflect the countervailing economic data.
On Thursday, spot gold traded stagnant, off its more than three month high level of $1,184, down from $1,190 from the previous session, when it had rallied 1.4% following poor data in the USA and China increased anticipation of a 2016 Federal Reserve rate of interest increase.
The Reuters survey forecast the mid-point of the fed funds target rate at 0.375 percent at the end of December, which implies a quarter point hike from the current zero to 0.25 percent range, unchanged from a September 11 survey.
He said that while the central bank had a clear strategy, what was not certain was how the economy would perform.
Fed officials have issued very different interpretations of the data, raising uncertainty over when the central bank will raise rates.
Among these risks is the possibility that shifting expectations concerning U.S. interest rates could lead to more volatility in financial markets and the value of the dollar, intensifying spillovers to other economies, including emerging market economies.
Bloomberg earlier reported that Republican presidential candidate Donald Trump said in an interview that “Janet Yellen for political reasons is keeping interest rates so low that the next guy or person who takes over as president could have a real problem”.
“While it may look like core inflation is moving towards that desired 2.0-percent mark with this report, the mix is not necessarily what the Fed expected”, said Sophia Kearney-Lederman, an economic analyst at FTN Financial.
Indeed it was worries about “conditions abroad” which were widely focussed on by traders, the Fed, and pundits when the Fed decided not to raise rates during September.
“Investors are reacting to the increasing likelihood that the Fed rate hike, which had been expected just a month ago in September, now likely won’t happen during the course of this year”, said David Levy, portfolio manager at Kenjol Capital Management.
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“We don’t know all the reasons you make decisions”, Taylor said. That accords with market price approximating around a 5% chance of a hike. And if that is the case, we should see greater pressure over time on resources.
