Chicago Fed president says rate hike ‘appropriate’

Chicago Federal Reserve Bank President Charles Evans on Wednesday offered a lukewarm endorsement of an interest rate increase later this year, despite his worry that inflation is still undershooting the USA central bank’s 2 percent target. The unemployment rate was unchanged at 4.9 per cent as more people looked for work amid brighter prospects.

The average earnings for hourly pay increased during July by 8 cents and are up more than 2.6% compared to the same month past year.

I believe we are likely to see only one Fed rate hike in 2016 given current modest USA growth trends.

Its most recently issued 10-year debt, a zero coupon bond maturing in August 2026, yielded minus 0.9 percent, down 1 bps, according to Reuters data.

With the near-term risks to the USA economy receding, according to the Fed’s latest policy statement last week, policymakers appear split on the best course ahead. “It also backs up the assessment within the latest Federal Open Market Committee statement that near-term risks to the economic outlook have diminished”, said ING economist James Knightley.

Last month’s data is certain to reverberate not only for policymakers at the Fed, but also for presidential candidates Hillary Clinton and Donald Trump as November’s election draws closer. The report states that the employers have added around 255,000 jobs in the market in July FY16.

The employment report provides some reassurance to the officials following issuance of disappointing annual economic growth rate of 1.2% in the second quarter.

Jobs growth and wages have been key factors in the deliberations for the Federal Reserve over the timing of a possible interest rate rise. The July payrolls strength underscores the economy’s sound fundamentals and economists said GDP growth is expected to be revised upwards to 2.5 per cent in the second quarter.

“If you have got steady growth and a tightening labour market, I think that is a recipe where the Fed will become increasingly uncomfortable with the very low level of rates”.

One curious counterpoint: While job growth has averaged 190,000 in the last three months and 206,000 in the last 12 months, inflation, both in terms of wages and in broader measures, has remained quiescent.