Fed authorities eye US higher interest rates

The Fed authorities eye US higher interest rates. However, are there possibilities of US economy going into recession? Find out what the Fed officials believe.

16 February, AtoZForex Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, stated that significantly US higher interest rates are warranted. According to an influential Fed policymaker, if fiscal policies provide a boost as expected and the economy continues to grow a bit above its trend, Fed aims to raise interest rates in the months ahead.

When is the next interest rate hike?

Chief Market Analyst, Peter Boockvar, expects Fed to give the first 2017 interest rate hike by next month.  He expects the hike considering inflation indicators and Fed Chair Yellen’s congressional hearing.  He said:

“I think March is a done deal.  I think Janet Yellen in her nice, soft, clear way said it was a done deal.  And I think yesterday’s CPI number clinched it.”

Why Dudley wants to delay portfolio sinking?

Forecasts from Fed officials suggest three rate hikes this year.  At this point, they could consider beginning to reduce the $4.5-trillion portfolio of bonds.  The central bank amassed these in the wake of the financial crisis.

When asked about this timing, New York Fed President, William Dudley, stated that he would want to delay reducing the portfolio until he is more confident that there is no need for rate cuts.

Indicators for US higher interest rates

The Bureau of Labor Statistics reported that the CPI spiked 0.6% in January, the largest increase since February 2013.  This reflected rising prices on petroleum and other goods, indicating rising inflation pressures.

Jeffrey Lacker, a nonvoting member of the FOMC, stated that almost all policy rules are recommending higher interest rates.  After making two hikes in a decade, Fed currently targets its federal fund rate between 0.5% and 0.75%.  He added:

“Taking the range of plausible alternatives into account, my view is that, with unemployment at or below levels corresponding to maximum sustainable employment and with inflation very close to our announced target of 2%, significantly there is need for higher rates.”

A close ally of Fed Chair Janet Yellen, William Dudley, believes that Trump and his team would not derail plans for gradual rate hikes in the months and years ahead.  During his speech at Cornell College of Business, Dudley said to the students and graduates:

“We expect to steadily remove further monetary policy accommodation and snug up interest rates a little bit further in the months ahead if the pace of US economic growth runs just above 2%, unemployment remains low, and inflation continues to rise.”

What can push the economy into recession?

According to Richmond Fed President, Jeffrey Lacker, the risk of waiting is that it can create inflation pressure, which in turn will raise the interest rates rapidly.  He also said:

“Such rapid adjustments can be hard to calibrate, and they can heighten the risk of overdoing it and sending the economy into an unnecessary recession.”

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