There is a strong case for United States Federal Reserve officials to lift interest rates when they meet next month, Craigs Investment Partners Chris Timms said yesterday.
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The Federal Reserve Bank of Boston joined eight other reserve banks in requesting a quarter percentage-point increase in the discount rate before the October 27-28 meeting of the Federal Open Market Committee.
Fund managers polled by the Bank of America Merrill Lynch said long dollar was the most crowded trade in markets earlier this month, with the greenback trading close to an 8-month peak against a basket of currencies this week, ahead of the possible move from the Fed next month.
The president of the St. Louis Fed, James Bullard, said on Friday that US monetary policy should be more data-dependent and the central bank must be ready to be flexible.
Demand for bullion and the other metals that do not pay any interest could be hurt by higher rates.
While current levels of inflation are of course important, the temporary deflationary pressures have forced the Fed to focus more on the outlook and its ability to keep a lid on inflation when it does start rising again, hence the desire to raise even when it’s still well below its target.
“The public and markets have been well prepared and understand that we’ve been watching carefully the data to determine what the true underlying nature of the economy is”, Mr. Lockhart said. “This time I am hopeful we can be more flexible and reactive to data”.
Delaying a rise “could increase uncertainty in financial markets and unduly magnify the perceived importance of the beginning of the policy normalisation process”, the minutes said.
Over the past 20 years, the Fed has raised rates three separate times – in 1994, 1999 and 2004.
“The Fed is just trying to get the world used to the idea that interest rates are not going to be zero forever”, Thokan argues.
On the RBA’s own forecasts, growth was not expected to get back to trend until late 2016 and the unemployment rate was expected to stay high for the next two years. The path it takes will therefore be a balancing act of returning monetary policy to “normal” while not taking too much out of the still-fragile recovery.
“If the Fed decide not to hike in December we would expect that would be the result of a weaker global outlook”.
Prices actually fell 0.1 percent on the year in October for a second month but as 2014’s oil price plunge drops out of the annual comparison in the next few months, inflation should pick up.
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RBC highlights the speed of jobs creation is slowing as the slack in the workforce fades away.
