“Everyone may not be in agreement that rates should rise but there is a general acceptance now that it’s happening and the market seems capable of dealing with it”.
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“In reality, the economy is performing more than well enough to cope with a small rate increase from the current record low levels and it’s good to see that the market is moving on from the hysteria surrounding it. The path of rate hikes is far more important than the first”, Mr Erlam added.
Jobs numbers are well up on 2008 numbers, and unemployment had fallen to 5 per cent. Confidence is up, the housing sector had recovered and business investment is picking up.
The Fed’s targets for the US labor market have largely been met and its price goals should be met over time, he said in prepared remarks to the DeKalb Chamber of Commerce in Atlanta.
Bullard said the Fed should avoid the policy that led to a tightening cycle, where the Fed raises short-term interest rates to curb spending and slow inflation, from 2004 to 2006.
“Dec. 16 is a very, very live date for action, and frankly, given the stellar 271,000 jobs report since the October meeting, we would be astounded if they don’t raise rates finally”, said Chris Rupkey, chief financial economist at MUFG Union Bank in NY.
Markets, already having bought into the idea of a December move, were unmoved by the FOMC minutes Wednesday.
Signals that the pace of United States interest rate hikes will be slow after a likely lift-off next month gave Asian bourses a fillip yesterday. If the economy looked like it was stronger, then maybe the committee would go in a more hawkish direction.
“We are going to return to an era where there is a bit more uncertainty about what the committee is going to do, meeting to meeting”, Bullard, who votes next year on policy, told reporters after a speech in Fort Smith, Arkansas. This prompted the Fed from raising interest rates, but the outlook is different now and there’s a high possibility that a rate hike will be seen in December. Those interest rates affect the prices of stocks, bonds, real estate and other assets.
China’s yuan edged up on suspected intervention after the central bank set its daily midpoint firmer.
“I’m virtually certain that was not optimal monetary policy”, he said.
The USA dollar has risen 20 per cent on a trade weighted basis against a basket of major currencies, pushed upwards by expectations of a rate rise.
The US dollar also weakened against the yen after the Bank of Japan decided against ramping up its stimulus program despite the country’s economy falling into recession. The two-year yield was just 0.55 per cent in mid-October.
Unlike before the GFC, global shares are as cheap as they’ve ever been on a cyclically adjusted price-to-earnings multiple, a measure that compares share prices on a ten year rolling average. “We expect the Fed to tighten policy at a gradual pace”.
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