Federal Reserve Governor Daniel Tarullo on Friday repeated his assertion that he wants to see more evidence of a sustained uptick in inflation before raising interest rates, dampening expectations of a rate hike by the US central bank next week.
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“Those hawkish comments from Rosengren helped the dollar; also in general the probability of a September hike has gone up a bit”, Vassili Serebriakov, FX strategist at Credit Agricole in NY, said in a telephone interview. On balance, he added, risks to the USA forecast “are becoming increasingly two-sided”.
The “modest” wage pressures so far this year mean the labor market is tightening and could well exceed “full employment” next year, Rosengren said.
Brainard and Rosengren are both voting members on the FOMC, which sets the target for US short-term rates.
The Fed raised rates from near zero last December – the first rate hike in almost a decade – but has since stood pat given an economic slump at home and volatile markets overseas. The yield on the benchmark 10-year Treasury note added 5.2 basis points to 1.671%, its highest level since June 23, the day of the Brexit vote.
The stance from Rosengren is significant as he is usually on the dovish end of the spectrum, but over the past few months he has been more vocal in backing the case for higher interest rates.
The dollar index, which tracks the USA currency against a basket of six currencies, rose 0.4 percent to 95.438, nearing its highest levels on Tuesday before a weak US service sector report knocked the dollar 1 percent lower.
The S&P 500 fell 0.22%, the Dow Jones Industrial Average declined 0.25%, and the Nasdaq was lower by 0.5%.
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The comments helped boost the dollar and short-term Treasury yields, weighed on stock prices, and they appeared to help lift the odds of a September rate hike to about 30 per cent, from about 20 per cent on Thursday.
