Fed’s Lacker: China not affecting fundamentals of U.S. economy

Mr Robert Kaplan, the new chief of the Dallas Federal Reserve Bank, said on Monday (Jan 11) he supports gradually increasing USA interest rates, adding that keeping monetary policy too easy for too long poses risks that could be painful to address.

In remarks to Bloomberg TV, he said he would be watching progress on gross domestic product, unemployment and inflation.

PIMCO’s base case scenario is that the Fed will raise rates three times this year by 25 bps each time, more than the two rate hikes priced into the markets, according to Crescenzi’s latest Federal Reserve Outlook for 2016.

“Beyond dollar appreciation, there is also the potential for increased exchange rate volatility”, she said.

Lacker, who is not a voter on the Fed’s rate-setting committee this year but participates in its deliberations, also repeated his preference for four interest rate hikes this year.

“I think [the Fed] will have to wait until perhaps until we see some steadying in oil prices”, said Kelly.

“Further tightening will require data continuing to be strong enough that growth will be at or above potential, so that Federal Reserve policymakers can be confident that inflation will reach or 2% target”, Rosengren said. “We do pay attention but it doesn’t determine what we are going to do”, he said in a question and answer session.

Rosengren is the second Fed official this week to suggest that worldwide conditions, and specifically doubts about China’s economic growth and continued weak inflation, could be tugging down the Fed’s expected path of rate hikes.

Lagarde said higher USA rates, combined with easing in the euro zone and Japan, could push up the dollar, making life harder for the many companies in emerging economies that borrow in dollars.