Fed’s Williams still wants two interest rate hikes by year end

Thomson ReutersNarayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, speaks at the ninth annual Carroll School of Management Finance Conference at Boston College in Chestnut HillFRANKFURT (Reuters) – A significant drop in the long-run interest-rate level that marks a sweet spot for a healthy US economy is making it harder for the Federal Reserve to do its job, a top policymaker said on Thursday.

Much has already happened since the Fed’s June meeting. The USA central bank has made clear it intends to raise the benchmark interest rates after a period of record low borrowing costs.

Future hikes, though, would be detailed in an “implementation note” that would explain the moves.

George does not vote on the Fed’s main rate-setting committee this year, but has been consistent in pressing for an earlier rate hike.

Officials stated that they needed more evidence that economic growth was sufficiently strong and labor market conditions had firmed enough to return inflation to the Committee’s longer-run objective over the medium term.

Though government bond yields edged lower, market reaction was muted to the Fed minutes, which reflected sentiments from a meeting prior to Greece rejecting an austerity referendum and before a sharp selloff in Chinese stocks.

Had the Fed been privy to what was to come globally, it may have sounded an even more cautious tone.

Sweeting said the volatility in China’s stock market will likely drive US dollar strength, which isn’t exactly good news for American corporate bottom lines.

Economic signals have been mixed this year. On the employment front, the unemployment rate has risen due mainly to an expansion in job search activities, but the employment-to-population ratio has also increased as the number of persons employed has grown.

Gross domestic product contracted 0.2 percent in the first quarter, a condition most Fed officials were willing to write off as “transitory”, while manufacturing lagged and housing indicators were mixed.

Based on now available information the Committee considers that the trend of economic recovery in the United States has grown evident again, and that the improvements in the euro area have continued as well. Its economy is suffering as a result of the fall in oil prices and worldwide sanctions imposed following its invasion of Ukraine – a war that will now force Ukraine to restructure its foreign debt, which the war, severe recession, and currency depreciation have rendered unsustainable. But the Fed indicated it was on track for at least one and perhaps a second rate increase later this year.

But if the Fed minutes play up a strong labor market and signs of wage inflation, it could “keep a September rate hike” in play.

“This is not about going on a tightening cycle”.

Evans said he disagreed with the notion that it is about time for the U.S.to start raising interest rates.

“Right now the Fed is on hold”.