Once rate hikes start, he said, the Fed will reassess conditions at each meeting and will pause further rate hikes if needed.
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United States rates futures on Thursday implied that traders see a 72% chance the Fed will hike rates in mid-December, compared with 68% on Wednesday.
From since 2006, the Fed has had USA interest rates near-zero. But in this case investors seem to believe the Fed maintained that low interest rate policy too long. The fact that the news has boosted stock prices should make the Fed less reluctant to make the right move.
“We fully expect (Fed chairwoman Janet) Yellen to promote this heavily at her press conference”, he added, referring to what Ms Yellen would say after the pivotal December 15-16 policy meeting.
This article was originally published by the Mises Institute.
The greenback appreciated rapidly from mid-2014 in anticipation of a rate increase that the central bank indicated would come in the following year.
“It sounds pretty hawkish to me, that they want to raise rates in December”, said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas.
Time and time again, and despite the market’s expectation of a rate lift off, the Fed has been reluctant to raise rates, fearing disruption of the economic recovery process.
“It was noted as well that the longer-run normal level to which the nominal fed funds rate might be expected to converge…would likely be lower than in previous decades reflecting a slower rate of potential growth”.
Since then U.S. economic data has strengthened with USA non-farm payrolls indicating a healthy labour market.
Banks, which would benefit from higher interest rates because of a bigger margin between what they pay for deposits and what they can charge on loans, were on the front foot in Asia’s second largest economy.
On Friday, the Malaysian unit rose as much as 2.2 percent to 4.2520 per dollar, its strongest since November 4, as investors continued to unwind bearish bets on the worst-performing Asian currency in 2015. However, not all members agreed that rate rises were desirable, with some questioning whether the U.S. economy could continue to grow in the face of tighter monetary policy.
Over the last three tightening cycles, the dollar rallied going into a rate increase and weakened in the three to six months after the initial hike, according to Société Générale research.
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Speaking at the DeKalb Chamber of Commerce in Atlanta, Lockhart said some important aspects of the economic picture were weaker than a year ago, “energy being a prime example”.
