Fed’s Fisher Sees Inflation Rebound

Investors will keep a sharp eye on the Labor Department’s monthly jobs report on Friday, which will be the last one before the Fed meets on September 16-17.

On Saturday at the event hosted by the Federal Reserve Bank of Kansas City, Fischer delved a little further into his thinking about recent market movements, including stock market volatility, falling oil prices and the stronger dollar.

The Federal Reserve’s vice chairman, Stanley Fischer, said on Saturday that he saw “good reason” to expect that inflation would rebound to a healthier pace as the American economy continued to grow. However, data released Friday showed the Fed’s preferred inflation gauge, the price index for personal consumption expenditures, remained below the Fed’s 2 percent inflation target for 39 consecutive months.

The Fed is interested more in where the US economy is heading than in knowing from where it has come, Fischer said, adding the central bank follows economic developments in the rest of the world as well as the U.S.in reaching our interest rate decisions.

The immediate market reaction to Fischer’s comments sent stock prices down slightly and pushed the dollar up – signals that traders were interpreting Fischer’s remarks as boosting the likelihood of a September rate hike.

As for inflation, “with regard to our degree of confidence in this expectation, we’ll need to consider all the available information, and factors relevant to certainty and uncertainty about those projections for the economic outlook, before we make that judgment”, he said.

Global markets ended last week on a calmer note, however, helped by easing steps from the People’s Bank of China and other government support measures, and hopes that the Fed would delay hiking rates following this month’s tumult in financial markets.

J. C. Penney’s (JCP.N) shares were up 2.3 percent at $9.15 in premarket trading after Deutsche Bank raised its rating to “buy” from “hold”.

Global stocks were mostly lower Monday after a U.S. Federal Reserve official suggested a September interest rate hike still was possible and weak Japanese factory activity provided more evidence of a sluggish global economy.

But other economists have questioned whether the Fed can achieve its target for inflation without providing more stimulus for the economy.

At this weekend’s summit, policymakers from around the globe indicated that they were prepared for the Fed’s rate hike plans. In contrast, the US dollar has gained more than 6 percent year to date.

In the United States, the five-year, five-year forward breakeven rate, 2.16% at the beginning of August, slid as low as 1.89% on 24 August. Just like Yellen, Fischer then tried to reassure the market that once the interest rate hike begins, it will be a very slow and gradual process. Fischer said that first the interest rate would likely go up a quarter-point, meaning.25 percent, and then at a later date, it would go up to.50 percent.