“Over the past 3 weeks, most of the Fed governors have spoken of a hike in interest rates being appropriate”.
Oil prices hovered near three-month lows while a key gauge of world stocks advanced on Monday as investors braced for a busy week for global markets, including a potential U.S. interest rate hike by the Federal Reserve.
Those are figures the Fed should be fine with, Low said.
“A lot will depend on any upward revisions in the official economic forecasts and inflation expectations”.
It’s true that there is a contradiction between Trump’s insistence that interest rates are too low and his promise of extraordinary economic growth. The U.S. economy no longer needs the elixir of keeping interest rates low.
Don’t expect any movement at the Bank of England on Thursday at noon, or from Japanese rate setters while London sleeps.
Traditionally, manufacturers have been taught that rising interest rates are bad for business for two reasons.
Indeed, U.S. consumers stand out among other heavy card-using economies when credit card debt is matched against the household-debt-to-GDP ratio. The central bank’s role should diminish as fiscal policy picks up.
Sparking unease among the economists at the NY investment bank is a lesson from the late 1960s, when the economy looked more than a little like it does today with low unemployment yet stable inflation expectations that make any inflation outbreak look implausible.
The central bank is also expected to confirm its “dot plot” plan, which entails two more rate hikes over the remainder of the year. And since the Fed’s actions take time to work their way through the economy, there’s a risk that it could fall behind in the fight against emerging inflation.
There is a “50-50” chance that the Fed may aim for more hikes than the three rounds commonly expected for this year, but these are more medium-term concerns, National Australia Bank senior market strategist Julian Wee said.
In testimony before Congress in February, Yellen highlighted these hazards.
The rand was weaker against the dollar in late afternoon trade on Tuesday as the dollar gained against the euro and pound ahead of the US Federal Reserve’s rate announcement on Wednesday. Despite the move, rates will be in negative territory compared with inflation. The Fed has a 2 percent inflation target and tracks a measure that is now at 1.7 percent. The Fed’s comfort with raising rates was presumably buoyed on Friday by a jobs report that showed employers added 235,000 workers to their payrolls in February, helping to drive down the unemployment rate to 4.7 percent. “Markets will particularly focus on future projections and the tone of the guidance from the Federal Open Market Committee (FOMC) meeting, particularly if there are any indications of a June rate hike”, said Monica Malik, chief economist of Abu Dhabi Commercial Bank. Business investment remains low and productivity in the U.S., as elsewhere in the developed world, is growing sluggishly. It also undertook an unprecedented policy known as quantitative easing, in which it purchased huge volumes of Treasuries, mortgage-backed securities and other assets that expanded its balance sheet from less than $900 billion before the crisis to roughly $4.5 trillion today.
What is the Fed expected to do?
Dallas Fed President Robert Kaplan spoke on CNBC, saying that Fed policy makers should begin removing monetary policy accommodation, and markets moved shortly after.
“The inflation risks are pretty clearly tilted to the upside”, said Eric Stein, a portfolio manager for Eaton Vance in Boston. With Yellen’s new outlook for the rate hike, Trump praises her yet again. The Federal Reserve may raise interest rates, more countries around the world may move to shake up the economic status quo and several high-profile updates on the us economy are scheduled for this week. Moreover, analysts say the strong showing on jobs, while partly due to a “Trump bump”, is more likely the result of steady economic improvement over time.
Furthermore, given the upheaval in Congress, it is not clear when or if Trump’s expansionary policies will get off the launch pad, he added.”I don’t think it’s coming right down the pipeline”, Ricchiuto said.The Fed has indicated it may need to raise rates faster if the Trump administration passes its promised tax cuts and spending program.
Plus, a strong dollar tends to make US products like iPhones more expensive – and less attractive – to foreign buyers.
Yet some economists remain more cautious.
So the question now moves to the Fed’s long-term strategy.