Any doubts over about December Fed hike may be swept away

By prolonging its policy of targeting interest rates at zero, the Federal Reserve spared the country from half or more of the damage to the US economy that would have followed the steep rise in the dollar over the past year, Fed Vice Chairman Stanley Fischer said Thursday evening.

“The Federal Open Market Committee’s (FOMC) decision should remain data-dependent, with the first increase in the federal funds rate waiting until continued strength in the labor market is accompanied by firm signs of inflation rising steadily toward the Federal Reserve’s 2% medium-term inflation objective”. As though pandering to an unruly child, Chicago Fed President Charles Evans assured us that rate hikes would be gradual and probably reach less than 1% by the end of next year.

Treasuries rose, pushing 10-year yields down from close to a three-month high, as Federal Reserve officials stressed the need for a cautious approach to lifting interest rates while reiterating their inclination to begin the process this year. Prices dropped 0.4 percent in October and were down 1.6 percent over the past year – the largest decline since the revamped series started in 2009.

“People under 50 have never seen rates go up (as adults)”, said Davidson.

“I see the risks right now of moving too quickly versus moving too slowly as almost balanced”, he said, explaining that the lingering hangover from the financial crisis and 2007-2009 recession may have depressed the so-called neutral rate of interest and that even though the Fed was near zero, “the current monetary policy stance is not exceptionally stimulative”.

The conflicting messages from Fed officials reflect a shakier-than-usual economic recovery in the years since the 2008 financial meltdown pushed monetary policymakers to extremes. But Lacker said he would prefer a pace “a little more rapid” than one percentage point a year.

The Fed may be jawboning the markets lower with the threat of higher interest rates.

Economists surveyed by The Wall Street Journal had expected overall prices would rise 0.2 per cent and core prices would rise 0.1 per cent.

“Monetary policy can not confine itself to reacting to the latest inflation data if it is to promote the wider goals of financial stability and sustainable economic growth”. 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.

In early October, before last week’s strong United States jobs report, 65 per cent of forecasters predicted a December lift-off, the newspaper said.