Interest Rates Could Rise As Soon As December

“This may very well be probably the most dovish tightening cycle we have ever seen, and we do not assume rates of interest can be materially greater than they’re now even a yr from now”. “I see the risks right now of moving too quickly versus moving too slowly as almost balanced”.

In September, the Fed made a decision to delay raising short-term interest rates that have been pinned near zero since December 2008. Dudley, the president of the Federal Reserve Bank of NY, commented that numerous barriers to a rate increase have receded. “In part, that is because monetary policy is not as stimulative as the low level of the federal funds rate might suggest”.

Lastly, there is what I view to be the most valuable leading economic indicator of them all for our consumer-based economy – the rate of growth in consumer spending.

The problem is that the Fed is still far from achieving its mandate. “A second consecutive month of outright deflation certainly calls into question the Federal Open Market Committee’s expectation for inflation to reverse course near-term and head back towards the Fed’s longer-tem objective of 2%”.

Policymakers, who have held benchmark overnight rates in a zero to 0.25 percent range since December 2008, are split over whether inflation is likely to rise from the current 1.3 percent under their preferred measure, which excludes food and energy. “An over-reliance on extremely accommodative monetary policy may be one of the reasons why the world has not escaped from the clutches of a financial crisis that began more than eight years ago”, Avinash Persaud wrote in support of a September rate hike, which didn’t materialize. Meanwhile, Richmond Fed President Jeffrey Lacker said he doesn’t think that recent low inflation “implies a more permanent departure from our target”. The median estimate of policy makers’ forecasts submitted for the FOMC projected the rate at 1.4 percent by the end of 2016. However, the evidence suggests doing so is still a coin flip, as there is evidence to suggest that they should raise rates and also perhaps stronger evidence to suggest they shouldn’t.

New applications for unemployment benefits in the United States remained near a 15-year low this week, while the average number of new claims rose 5,000 to a seasonally adjusted 267,750 over the past month, statistics from the U.S. Department of Labor revealed.

“Given the economic outlook, starting the process to normalize interest rates will help ensure that we can, indeed, take a gradual approach”, Mester said, according to the text of a speech she is scheduled to deliver later on Friday to the City Club of Cleveland.