NY Fed banker sees interest rate hike soon

So don’t go betting the farm on a Federal Reserve rate hike in December.

Interest-rate futures indicate a 66-per-cent probability of a move in rates when the Federal Open Market Committee wraps up its next meeting on December 16, according to data compiled by Bloomberg.

Financials should benefit in rising-rate environments as the difference between short-term and long-term rates – the so-called yield curve – steepens. This escalation of costs will start reflecting in the local interest curves followed by corporate and retail borrowing.

Fed speakers hinted strongly at a rate hike this week.

“There were at least two reasons for this: one is the lower September and October actual inflation rate, and also to the declining oil and other commodity prices”, BSP Deputy Governor Diwa C. Guinigundo told reporters. “We’re not going to be here forever”, he said of low inflation. The pegs will be tested as central banks fund the United States dollar requirements for imports and downgrades by rating agencies will be a constant threat to the hydrocarbon based economies of the region. Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, who has voted to raise interest rates at the past two meetings of the policymaking committee, said in an interview Wednesday that he would prefer a pace “a little more rapid” than 1 percentage point a year.

He noted, however, that the strong dollar is not likely to keep inflation below target for long, and that setting aside energy and food prices, inflation is already above 1 percent.

“More specifically, before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher”. Conversely, disappointing figures trigger rallies, as traders become hopeful that interest rates will be kept at ultra-low levels for longer, and central banks may inject more liquidity into the economy through additional doses of QE.

Investors were waiting for direction on USA monetary policy with six Federal Reserve officials, including chair Janet Yellen, giving speeches on Thursday. Evans said he expected it would be appropriate for rates to remain below 1 percent at the end of next year. The Fed may attempt to control bank lending by maneuvering the rate it pays on deposits, but I believe that over time the level of excess reserves in the banking system must be reduced in order to maintain orderly money markets.

Forbes said the IMF had missed “one vital point about monetary policy: it takes time to work through to the real economy”.

Eurozone is also battling high unemployment; low inflation and nonexistent growth, however, similar to Japan; eurozone is also following gradualism.

The USA job report last week was indeed a game changer as it ticked all boxes in terms of strength and it has raised a discussion about whether the FOMC is now behind the curve and will have to act tougher despite the weakness seen across other major economies. The goal at the time was to stimulate economic activity by encouraging investors to invest and encourage businesses and consumers to borrow.