Fed trying to avoid rate hike surprise


23 November, AtoZForex.com, Lagos – As the timing for the December Federal Reserve meeting nears, more evidence pointing towards a potential rate hike continues to surface. A number of top central bankers have recently made hawkish comments, making a lift off from near zero levels even more likely in December.

The Fed is trying to cushion the effect of any market surprises, or out rightly avoid it a rate hike surprise, therefore by being explicit on the matter. The last FOMC meeting minutes also confirmed a strong support for rate hikes from policy makers.

Speaking to Reuters in a recent interview, Federal Reserve Vice Chair Stanley Fischer said:

“In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates,” Fed Vice Chairman Stanley Fischer told the San Francisco Fed’s biannual Asia Economic Policy conference.

“While we at the Fed continue to scrutinize incoming data, and no final decisions have been made, we have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to ‘just do it’.”

Equally encouraging are comments from the New York Federal Reserve President William Dudley. He clarified that the Fed should be ready to commence rate hikes soon as the policy makers grow more confident in the economic condition, expecting that low inflation will rebound and that employment remains stable He said:

“We hope that relatively soon we will become reasonably confident that inflation will return to our 2 percent objective,” he said at Hofstra University. Dudley said it was “very logical” to expect that the Fed’s inflation and employment conditions would be met “soon,” allowing policymakers to “start thinking about raising the short-term interest rates.”

Fed meeting minutes

In the last Fed meeting minutes, despite the fact that the report showed strong support for a possible December rate hike from officials, the dollar fell overnight. The dip could be attributed to the argument concerning whether the U.S. economy’s long-term potential may have permanently shifted lower. However, it remains clear that policy makers feel more confidence in the economy than previously felt in the September meeting.

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