Two banks are clearly will most likely not support a discount rate hike: Minneapolis, which wanted a cut in the discount rate in September, and the Chicago Fed, where President Evans has been on the record favoring no hike in December.
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Bullard shied away from offering any definite decisions on when the short-term interest rates would increase, but the market already began its response to the possibility of an interest rate hike following a positive November jobs report that, according to Clay Nickel, investment strategy director with Arvest. A particular concern is that employment growth might be tailing off and labour markets haven’t yet fully recovered. Last month, a sharp rise in U.S. payrolls brought unemployment close to 5 per cent, a rate that many economists consider to be the natural unemployment rate in the US.
“I think the market is ready and comfortable for an increasing Fed funds rate”, said Alan Rechtschaffen, portfolio manager at UBS Wealth Management Americas in NY.
So, how will this parlour game play out?
Manufacturing today is also weaker than it has been in the past three instances.
The Australian dollar stood firm at $0.7199. “Since economic data can surprise on the upside and the downside, maybe there will be opportunities to show we are data dependent”. “Of course, raising rates with half of the Fed’s mandate – stable prices – not yet met, also risks the Fed’s credibility”.
Still, uncertainty remains over the pace rates will rise given the U.S.’s tame inflation outlook.
The euro fell on expectations that the European Central Bank will ramp up its monetary stimulus in December.
“I’m virtually certain that was not optimal monetary policy”, he said.
US Federal Reserve chair Janet Yellen: markets are indicating about a 75 per cent chance of a U.S. rate increase next month, the first in nearly a decade.
More pressure on bullion is expected as investors exit positions in the metal ahead of the looming US rate hike.
The U.S. dollar bought 122.81 Japanese yen, lower than 122.88 yen of the previous session. “There is a ceiling on how much more it can raise rates because of the appreciation of the dollar”, she said. The discount rate, the rate at which banks borrow from the Fed’s discount window is set by the Board of Governors, rarely used by the banks.
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Williams sought on Saturday to make clear that rate hikes would not only be gradual, but would not follow the stair-step pattern that characterised the Fed’s last policy-tightening cycle, when it raised rates by a quarter of a percentage point at every meeting. Just don’t expect the trip to end any time soon.
