Firming of inflation could trigger December interest rate hike

“It seems increasingly likely the Fed will start a slow rate hike cycle in December”, says a note from Dutch bank ABN Amro, “resulting in a stronger US Dollar versus the Euro, Yen and precious metals”.

“What a weak dollar giveth, a strong dollar shall taketh away”, the analysts said.

“I think it is quite possible that the conditions the committee has established to begin to normalise monetary policy could soon be satisfied”, Dudley told the Economic Club of NY.

“I see the risks right now of moving too quickly versus moving too slowly as almost balanced”.

Indeed, as investors anticipate liftoff, borrowing costs already have started to rise.

“Even with one half of the Fed’s mandate – full employment – arguably met, can the Fed raise rates with the other half of the equation – stable prices – vehemently unattained?”

But Dudley said the current 5 percent unemployment rate “could fall to an unsustainably low level” that threatens inflation, while seven years of near-zero rates “may be distorting financial markets”.

The dollar took centre stage on Friday, as president of the US Federal Reserve Bank of Cleveland, Loreta Mester, said the country’s economy can handle an interest rate increase and the longer rates remain at zero the greater the risks to financial stability.

Japan’s benchmark Nikkei 225 index fell 0.8 percent to 19,534.97 while South Korea’s Kospi shed 0.8 percent to 1,976.88. He added that regardless of when it begins raising rates, the Federal Reserve must be clear that the pace of future increases will be gradual.

Fed officials are widely expected to raise the short-term interest rate they control for the first time in nine years at their next meeting in December. “The basics supporting home demand look fairly sturdy”, he stated. “Also, the global outlook appears less problematic than it did just a few months ago”. On the back of last week’s stellar Non-Farm Payrolls report, a strong print on inflation is likely to further anchor expectations for higher rates next month. Prices for the raw materials, which are priced in dollars, were looking less attractive as the Fed readies for a rate hike while the European and Japanese central bank look set to keep their rates low and consider rolling out more stimulus measures.

“Overall, the most recent confidence reading was equal to the average during the first 10 months of 2015, and higher than any year since 2004”, according to Surveys of Consumers Chief Economist Richard Curtin.

“While the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well”, he said. The feedback have been as various because the checklist of audio system: Fed Chair Janet Yellen, NY Fed President William Dudley, St. Louis Fed President James Bullard, Richmond Federal Reserve President Jeffrey Lacker and Chicago Fed President Charles Evans. “This meant that consumers held the most favorable inflation-adjusted income expectations since 2007”.