A strong dollar is restraining USA inflation and exports, justifying a slower pace of interest-rate increases, but on balance the us economy is riding out the effects fairly well, Federal Reserve Vice Chairman Stanley Fischer said Thursday.
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The FOMC said last month that it would consider moving at its “next meeting” on December 15-16 and Chair Janet Yellen told Congress on November 4 that December was live for action.
“I think it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied”.
For the Fed, which could begin raising rates in December after holding the benchmark federal funds rate near zero since the end of 2008, the IMF urged waiting until it is clear that the downward pressure on inflation is past. St. Louis Fed President James Bullard and Richmond Fed President Jeffrey Lacker also said they agreed with broad consensus at the Fed that rates would move slowly after the initial “liftoff”.
Let’s look at what happened during the when the Fed, then under Alan Greenspan, pushed the fed funds rate from 1 percent to 5.25 percent, concerned that easy money was fueling the housing craze. was 6.3 percent in mid-2004, and two years later it ended up at 6.7 percent, barely a half-point higher.
Gasoline prices are down more than 44 percent year-to-date, while natural gas prices are down 31 percent, helping the typical household save $800 a year. “Most noteworthy is the fact that inflation continues to run well below our 2 percent objective”.
In a Wall Street Journal survey of economists, most said the Fed will act next month, although many of them also believe that after the Fed’s first rate rise, officials will hold off on any other increase in borrowing costs until sometime in the spring. While the 30-year loan is by far the most popular, adjustable-rate mortgages, whose rates are tied to short-term debt, are sure to rise faster. We are expecting further softness in European equities on the open today in conjunction with weaker commodity markets and heightened expectations of a rate hike from the Fed next month. The head of Germany’s central bank is known as not being fond of quantitative easing as it is blurring the lines between monetary and fiscal policy.
“The best policy is to take a very gradual approach to normalization”, Evans said, emphasizing that “an even more patient approach is warranted”.
Regarding the overall economy, Williams said, “I don’t see much evidence of fragility or lack of momentum”.
“Should we find ourselves in a persistent state of low nominal interest rates and low inflation, a few of our fundamental assumptions about how U.S. monetary policy works may have to be altered”, said Bullard.
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Given the dearth of economic data releases yesterday the focus of attention was on central bankers.
