Federal Reserve Bank of Atlanta President Dennis Lockhart said he’s confident that US economic growth is accelerating, setting the stage for at least one increase in interest rates this year. “Even though the majority of USA economic activity data releases in the weeks since the FOMC meeting have been robust and despite the slightly hawkish statement by New York Fed President William Dudley on Tuesday, we think a Fed rate hike in September remains a fairly low probability event – approximately 30 percent – with the probability of a December hike at 50 percent, and that of a further delay at about 20 percent”, Credit Suisse noted.
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“I still think the Fed will stay on hold, but the pendulum of market thinking, and risk sentiment, is going to swing toward “higher rates sooner” which should support the United States dollar and potentially curtail recent stock market gains”, Dolan concluded.
USA bonds rallied today after the release of the details of Fed’s last policy meeting in late July, showing that fixed-income markets are taking these comments as dovish, in contrast to those who believe one rate increase is imminent this year.
While growth in the first half was weak, Lockhart said, “I, as one Fed policy maker, am not prepared to rule out at least one rate hike before year’s end”.
Federal funds futures for December delivery implied traders saw a 47 percent chance of a rate hike in December, down from 58 percent before the release of the minutes, according to CME Group’s FedWatch program.
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Lockhart described the labor market as nearing full employment, with wages showing signs of a pickup. “I’m reasonably comfortable with a forecast of reaching 2 percent by year-end 2017”. “It’s possible the election is a factor”, he said. This revelation gave some inkling that the Fed may at least be more divided when it comes to members’ opinions on near-term rate hikes, and perhaps not as dovish-leaning as it has been portrayed to be in the past few months. The Atlanta Fed district includes Alabama, Florida and Georgia, and portions of Louisiana, Mississippi, and Tennessee.
