Federal Reserve’s Vice Chairman Says Fed’s New Financial Rate-Hike Tools have

In mid-December, the Fed raised its benchmark federal funds rate from near zero to a range of 0.25% to 0.5%, signaling that rates might be on the rise in 2016.

The Fed improved its assessment of the labor market, noting “ongoing job gains, and declining unemployment”, and wrote that under-utilization of workers has “diminished appreciably”.

The fed-funds rate stayed on target even as banks and other financial firms parked a record $475 billion on the Fed’s books on the last day of 2015 via the central bank’s reverse repurchase agreement facility, which is created to set a floor underneath short-term rates.

Feldstein said that would still leave real rates negative after taking account of inflation, potentially promoting yet more speculation in markets that are already seriously overvalued. This is completely consistent with economic projections that are very little changed from three months ago, and the Fed continuing to assert that policy will be dependent on the data.

Still, Williams added that because weak overseas growth would continue to hurt exports, the Fed would have to continue with “significant monetary accommodation” to keep growth above 2 per cent.

Not only are Mester’s comments significantly more hawkish than the majority of her FOMC compatriots, financial markets now have only two, perhaps three rate hikes, priced in for the entirety of 2016. This much anticipated rate hike isn’t going to hurt the economy.

Noting that excessively inflated markets can point to overheating in the economy as a whole, Fischer suggested that a decision to use monetary policy in such situations would ultimately be based on an assessment of the overall economic risks and benefits of such a move.

The 30-year fixed rate could reach close to 4.65% by year’s end, says Jonathan Smoke, Realtor.com’s chief economist. David independently offers securities and investment advisory services through Ameritas Investment Corp. Additional products and services may be available through David R. Guttery or Keystone Financial Group that are not offered through AIC.