However, most of yesterday’s speakers appear to be lining up in the December rate hike camp.
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I know there’s a lot of jabbering in the media right now with the vast bulk of commentators, pundits and economists all saying in near unison that we’ve finally reached the tipping point and that December is absolutely the month that the Fed pulls the trigger and, for the first time in a decade, lifts USA interest rates.
Financials should benefit in rising-rate environments as the difference between short-term and long-term rates – the so-called yield curve – steepens. Banks can then charge higher interest rates on long-term loans and borrow in the short term at low rates, generating more profit on the difference.
The Fed has held interest rates near zero since December 2008.
Still, the central banker is anxious about weak inflation. Although September’s increase in the consumer price index (CPI) came in below expectations at an unchanged 4.6% for the month, the bank expects headline inflation to average more than 6% in the first and fourth quarters of next year, before declining again to 5.7% by the fourth quarter of 2017.
“I don’t favor waiting until I sort of see the whites in inflation’s eyes”, said Dudley, who has a permanent vote on the Fed’s policy-setting committee. Raising rates would begin to reduce that effect.
The Federal Reserve is getting ready to raise interest rates. St. Louis Fed President James Bullard (non-voter) said that the USA central bank should raise interest rates from near zero because emergency policies are not needed with the labor market and inflation near to the central bank’s goals.
Charles Evans, president of the Federal Reserve Bank of Chicago, said it would be appropriate for rates to remain below 1 percent at the end of next year.
In other words, stay tuned, the policy rate has not been raised yet. He indicated that he would prefer to see rates rise a little faster than one percentage point a year. The measure seemed to be working till the time a fateful policy error of raising sales tax from 5% to 8% was introduced which adversely impacted domestic consumption which constitutes 60% of their GDP.
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The market has prepped for rising rates many times before, sharply moving financial markets one way or another. Dudley, said the decision, still required the central bank to “think carefully” because of the risk that the United States is facing chronically slower growth and low inflation that would justify continued low rates. The Board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, centering around advanced economies such as the United States, but judges that the possibilities exist of its being affected by heightened worldwide financial market volatility due for example to a shift in the US Federal Reserve’s monetary policy, and by the weakening of economic growth in emerging market countries. Should we expect that they would be hesitant to support the markets and the economy and thereby create conditions that might help Republicans take the White House?
