Dollar slips as Fed December hike expectations firm

Fischer also noted that “it may be appropriate” to finally raise rates at the Fed’s December meeting, although events could intervene over the next month to dissuade members of the monetary policy committee from doing so.

“We have had a strong October jobs report and Fed Chair Janet Yellen herself referring to a December rate rise as a “live possibility” for the first time”, said Chris Hare, economist at Investec.

Chicago Fed President Charles Evans said any increases should be “gradual” and rates could be less than 1% at the end of next year, while Richmond Fed President Jeffrey Lacker said caution is warranted in policy responses to financial markets.

The euro edged up to US$1.081 (RM4.739) around 10pm from US$1.0741 at the same time Wednesday.

The Fed was right to adopt extraordinary monetary policy to battle the deep 2007-2009 recession, she said. A hike in interest rates would increase borrowing costs in the U.S. and lead to an increase in the strength of the United States dollar against other currencies, especially the currencies of developing countries.

Based on this report, along with the recent one on employment/unemployment, one could easily make an argument that the Fed hiking interest rates is a slam dunk decision. William Dudley, the president of the Federal Reserve Bank of NY President, said “it is quite possible” that conditions set by the Fed’s policymakers under which it would begin to “normalize monetary policy could soon be satisfied”. However, the evidence suggests doing so is still a coin flip, as there is evidence to suggest that they should raise rates and also perhaps stronger evidence to suggest they shouldn’t.

At the end of March, Yellen indicated that the Fed had not done enough to combat unemployment even after holding interest rates near zero for more than five years and engaging in quantitative easing.

A couple circumstance here is significant: The labor force participation rate – the share of the adult population that is either working or seeking work – stays lower than it’s been in more than three decades and did not budge in October. The calculations assume the rate will average 0.375% after the first increase, vs. the current target range of zero to 0.25%.

COMMODITY CRUNCH: A deepening slump in oil, metals and other commodities was putting investors off. Copper prices are down 23 percent this year while crude oil futures fell 2.7 percent on Thursday. With a rate hike this year now seen as very likely, the focus is shifting towards the pace of lifts. If you ignore volatile food and energy prices, then prices rose 1.9 percent, just shy of the Federal Reserve’s 2 percent inflation target.

The Fed’s weak inflation/strong employment conundrum deepened on Thursday as weekly jobless claims stayed near 15-year lows, with job openings at the second-highest level in the history of the series.

Evans, an FOMC voter this year and one of the committee’s most dovish members, has argued that liftoff should be delayed until 2016.

Fed officials have blamed weak inflation on temporary factors, including depressed energy and import prices, and most economists surveyed by The Wall Street Journal now believe the central bank will raise rates in December.