US stocks racked up their strongest gain in two months on Monday after Federal Reserve Board Governor Lael Brainard stuck to her dovish stance on interest rates and urged caution about removing monetary stimulus too quickly.
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In her speech to the Chicago Council on Global Affairs, Brainard cautioned against raising interest rates too quickly due to potential weakness in the labor market and risks of economic weakness overseas. Brainard said soft inflation and economic uncertainty requires “prudence in the removal of policy accommodation”.
Brainard’s comments are the last word from a Fed official before the meeting in 10 days.
It was a notion nearly wholly dismissed that a September rate hike was at all possible up until the annual Fed retreat to Jackson Hole, where we began to hear a burgeoning chorus of Fed presidents coming out in favor of another quarter-point raise.
A top Federal Reserve official is urging the central bank to move cautiously when it comes to raising interest rates.
He added in later comments to reporters that there was no “urgency” to act at any particular meeting as the Fed debates whether its current ultra-low interest rate remains appropriate for an economy that is “chugging along”.
Republican presidential nominee Donald Trump said on Monday that Federal Reserve Chair Janet Yellen was keeping interest rates low because of political pressure from the Obama administration.
Consider this current sell-off, for now, as nothing more than a near-term hedge toward a “surprise” rate hike next week, though the overall climate still suggests no raise until this December at the earliest.
Markets breathed a sigh of relief and rallied by more than 200 points because the risk that she might have agreed to signal a September rate hike had passed.
While the labour market firms up, inflation has remained frustratingly below the Fed’s 2 per cent target.
Some Fed watchers think investors have it wrong: They say Brainard is in the minority on the central bank’s policymaking board and that the Fed will vote to raise rates next week.
“Conditions warrant that serious discussion”, when the Fed meets next week, Lockhart said.
Lockhart is not one of the 10 voting members of the Fed’s interest-rate setting panel this year but he does participate in the discussions.
Many other policymakers think the USA job market is near full strength and Fed Chair Janet Yellen argued in July the case for rate increases has strengthened.
The policy path can continue to be assessed “in the months ahead”, she added.
Perrigo (PRGO.N) jumped 7.34 percent after activist investor Starboard Value disclosed a stake in the drugmaker and said it must make improvements to revive its stock.
Steve Stanley, chief economist of Amherst Pierpont Securities, said Brainard was “over the top dovish”.
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Minneapolis Fed President Neel Kashkari said “politics does not play a part” in the Fed’s deliberations and that current low USA inflation means there is no “huge urgency” to hike.
