USA central banker says December rate hike ‘plausible’

The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities rose as high as 1.97 percentage points on Monday.

Only “significant negative news” could derail the Federal Reserve’s high expectations for raising US interest rates next month, a Fed official who has recently advocated for policy tightening said on Tuesday.

US consumer prices recorded their biggest increase in six months in October.

The president-elect’s idea to spend more to upgrade roads, bridges and airports, though, in general mirrors Yellen’s frequent point that Congress should act to supplement what the Fed has done through low rates to encourage spending and spur growth.

Investors are now pricing a 90.6% chance of a rate hike at the Fed’s December meeting; according to federal funds futures tracked Investing.com’s Fed Rate Monitor Tool.

No references were made in the speech to the possible convenience of allowing the labour market too run a little hot or to the results of the past presidential elections.

“Progress to date and the expectation of further progress likely explain, in part, why markets have priced in a high probability of a rate hike in December”.

Financial markets have begun pricing in a more aggressive run of rate increases after Mr. Trump promised during the election campaign to boost the US economy with spending on infrastructure.

“The case for an increase in the target range had continued to strengthen”, Yellen said.

This rhetoric suggests the bar to a fast pace of Fed tightening during 2017 will be relatively high, but the comments also mean that a December hike is certain unless there is a major dislocation before the meeting.

Should the Fed raise its benchmark rate in the current situation, it would further strengthen the U.S. dollar but at the cost of seeing lower revenue from exports, Chatib said.

Yellen’s remarks will serve to cement expectations, barring a significant negative shock, for an increase in interest rates when the Federal Open Market Committee gathers in Washington Dec. 13-14.

Rabobank Senior Currency Strategist Jane Foley said there are many unknowns about the financial policy to be implemented in the USA from now on.

The ICE Dollar Index hit 100.57 on Wednesday.

Inflation, while still below the central bank’s 2% objective, has increased somewhat, Yellen said. In fact, an official from the U.S. Federal Reserve described the chances of a rate hike in December as plausible.

She cautioned that the Fed can not delay raising rates for too long, as that risks having to tighten policy more abruptly “to keep the economy from overshooting” inflation and employment targets.