But his assessment of “nearly balanced” risks represents a subtle shift in the thinking of a Fed member who has been hesitant to commit to a rate hike, but now sees evidence accumulating in favor of one.
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In a presentation at this week’s Schwab Impact conference in Boston, Gundlach laid out myriad reasons for the Fed to wait on its first hike in more than nine years, including the fact that workers 55 and older accounted for virtually all the 271,000 jobs gained in October.
Investors are betting on a December “liftoff”.
“I think it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied”. But the Fed has stuck with the status quo at near-zero levels 54 consecutive times.
The unemployment rate reached 5 percent last month and should remain low for a long period as more aging workers retire.
Chicago Fed President Charles Evans said any increases should be “gradual” and rates could be less than 1 percent at the end of next year, while Richmond Fed President Jeffrey Lacker said caution is warranted in policy responses to financial markets. “The important stuff now is we’re going to focus back on the data”.
Several officials on opposite sides of the Fed’s debate have made speeches highlighting differences in opinion about the pace of the rate increase. The Fed considers a solid 2 percent inflation rate to signal the economy is healthy enough to withstand an interest rate hike.
Lastly, there is what I view to be the most valuable leading economic indicator of them all for our consumer-based economy – the rate of growth in consumer spending.
Excluding volatile food energy prices, core inflation is still just 1.3 percent over the past year and 1.4 percent since 2008, Evans noted.
Financial markets see benchmark interest rates rising slower than Fed officials do. “That makes me nervous”, Evans said in Chicago.
“Domestic interest rates are sure to rise and put significant stress on the property market for the first time since the post-2009 surge in prices got underway”.
Deutsche Bank analysts have built a model to predict what the 10-year yield will do once the Fed starts raising rates. “My case is straightforward”, said Bullard, during a speech.
Polls of economists by Reuters and others show around a 70% chance the USA central bank will raise its short-term lending rate at its December 15-16 meeting, after last week’s stronger than expected labour market report.
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Fischer said that while the stronger dollar and foreign weakness have been a “sizable shock”, he believes the US economy is holding up “reasonably well”, in part because the Fed has responded so far this year by deferring any moves to hike interest rates. In this process it will closely monitor the trend of increase in household debt and external risk factors such as any changes in the US Federal Reserve’s monetary policy or in economic conditions in emerging market countries including China, as well as the trends of capital flows.
