John Williams: Lack of Fed rate communication

12 October,, Lagos – The slowing global outlook, low inflation, economic data, weaker than expected jobs report and many more are factors keenly watched by the Fed and investors alike, as we await the impending interest rate hikes.

Having left the rates at near zero levels since 2006, the time seems ripe for a rate increase. It remains unclear what the plan of the Fed is, after they failed to raise rates in the September meeting.

Lack of Fed rate communication

According to San Francisco Fed President John Williams, the Fed ought to communicate its views of the economy well enough, to avoid a surprise reaction from the markets when the rates are eventually hiked. While it is not perceived as an issue if traders are not fully pricing in a rate increase before it happens: "it shouldn't be the case that no one is expecting a rate increase," he opines.

This points to the fact that the Fed rate intention must be properly relayed, if rate hikes are to come this year, for a comfortable reaction. Williams believes it is an appropriate time to hike rates, saying: "We are essentially at full employment," he said. "We have to keep an eye on where the goal posts are."
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Signs of a worsening global outlook?

Having cited issues like global risks and low inflation as the reason for the hold off on rate hikes by the Fed in September, so far, Williams believes there have been no signs of a worsening global outlook, and while recent trade data was worse than expected, data on consumer spending has exceeded his expectations.

Labor conditions

The last jobs report showed that the U.S. economy added only 142,000 jobs in September. A disappointing report to most as the numbers came less than expected, therefore making many traders agree that the central bank is now much less likely to raise rates before the end of this year.

As for labor conditions, he opines that it is actually continues to improve. Unemployment remains with a positive outlook, 5.1 percent; full employment for the U.S. economy, in his view, is around 5 percent.

Williams argues that the economy is getting to the point where 100,000 new jobs a month will be sufficient to feed a healthy labor market.

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