Lockhart, reiterating a view he offered in a televised interview on Wednesday, said he agreed with the FOMC’s decision to delay a hike at both the September and October meetings, but that conditions have changed since then.
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The dollar weakened across the board on Thursday after rising for four straight sessions, as investors cashed in recent gains driven by widespread expectations of a US Federal Reserve interest rate increase next month.
“You could think about keeping a permanently higher balance sheet, lowering the term premium and therefore actually raising the natural rate of interest in the economy”, Williams said.
Bullard suggested the first of the five questions facing the FOMC is, “What are the chances of a hard landing in China?” The U.K.’s inflation rate as measured by the Consumer Prices Index remained at -0.1% in October, according to the Office for National Statistics. “This, it was feared, might presage additional weakness in emerging markets, and eventually spill over to the U.S”. The bump would put it in the one-quarter to half percent range.
“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.
The U.S. Labor Department reported a rebound in hiring last month, after weak readings in August and September.
The expected rate increase only stands at a modest 25 basis points, as pointed out by Loretta Mester, the president of the Cleveland Fed (telegraph.co.uk, November 18, 2015).
The St. Louis Fed chief said while the committee has said policy will be data dependent, he wants the group to follow through on that.
The US economy has been so far partly shielded from these global growth concerns, but once multinational companies start feeling the heat, the impact will be felt everywhere. “The unemployment rate, at 5 percent in October, is within the Committee’s central tendency of the estimate of the longer-run rate”, he said. If the final number does show more strength than the forecast, we could see another leg higher for the sterling against the basket of currencies.
Because lower worldwide natural rates mean central banks are potentially less effective than before, fiscal policymakers should also consider new approaches, Williams said, including perhaps putting in place automatic tax cuts that could go into effect if the jobless rate surges.
“The dollar hitting parity with the euro could possibly prevent the Fed from raising in December”, he said, “though I expect parity to be reached later in December”. “It’ll buy us all coffee”, he joked. But now that the rate outlook turns bright, banks are deemed to see an increase in their net interest income. Hence, the initial increase in interest rate will be positive to the economy.
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Silver was up 0.1 percent at $14.23 an ounce, platinum was up 0.6 percent at $858.50 an ounce, and palladium was up 2.3 percent at $548.72 an ounce.
