Doubts over December Fed hike may be swept away

Richmond Fed President Jeffrey Lacker (http://www.marketwatch.com/story/fed-still-has-ability-to-influence-inflation-lacker-says-2015-11-12) also neglected to discuss interest rates in a speech made Thursday morning, Eastern Time. Federal Reserve officials have admitted that the economy remains weak, so they must move cautiously. As investors anticipate the rise in interest rates coming soon, the costs of borrowing have already started to rise. The strong showing, meanwhile, may encourage the Federal Reserve to raise interest rates next month, Reuters predicted.

Still, a few remain unconvinced the Fed will hike rates next month, or that if it does raise them, it will be making a big mistake. Data from Reuters shows inflation at 1.9 percent year-over-year, same as the previous month’s reading.

Waiting for inflation to pick up before quickly tightening monetary policy heightens the risk of an economic hard landing, NY Fed President William Dudley said on Thursday.

The Fed’s preferred inflation measure rose just 0.2% in September, and is up only 1.3% in the past year.

“As a group, these [nontraditional bond] funds correlate highly with high-yield bonds and equities, and they don’t correlate positively with interest rates”, Mr. Jacobson said.

“It is critically important to me that when we first raise rates, the FOMC also strongly and effectively communicates its plan for a gradual path for future rate increases”, Evans said. “If we do not, then market participants might construe an early liftoff as a signal that the committee is less inclined to provide the degree of accommodation that I think is appropriate”.

The contrast between rising USA rates and probable further easing of monetary policy in other developed countries was one risk overshadowing the global outlook, along with a shift in gear in China and an end to the commodities super cycle, the surveillance note said.

In this camp, a few argue that by raising rates even a measly quarter of a percentage point, the Fed at least has that much ammo to cut rates again if necessary.

So far, our domestic demand has been strong enough to offset that weaker foreign sector, Rosengren said.

Claims have been trending downward since 2009, and employers have been reluctant to lay off workers, which suggests that the labor market is getting tighter, The Wall Street Journal explained. But his assessment of “nearly balanced” risks represents a subtle shift in the thinking of a Fed member who has been hesitant to commit to a rate hike, but now sees evidence accumulating in favor of one. Japan’s monetary policy during those years is widely seen as the cause of the economic stagnation.

“The markets will take a few time to digest the certainty of higher rates”, he said.