Is an October rate hike possible? St. Louis Fed President says maybe

Still, he explained that he supported the decision to hold off on a rate hike, and that it was prudent to consider the possible change in economic outlook. The dollar hit an nearly two-week high against a basket of currencies.

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The dollar broadly strengthened Tuesday on expectations that a Federal Reserve interest rate hike remains on track in the next three months.

“We are quite concerned that the Fed’s message has come through as relatively muddled this past week given that most governors have expressed a willingness to raise rates by year-end”, said INTL FCStone analyst Edward Meir.

At this point, “it’s too early to detect any significant impact on the real economy” in the US, he said in prepared remarks to the Buckhead Rotary Club in Atlanta.

US markets had declined last week after the Fed Chair expressed worries about global economy and cited this as the reason for delaying a rate hike. He was speaking at a China conference and said, “I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year“. Interest-rate futures now give just a 20 percent chance of an increase at the Fed’s October meeting, and 49 percent probability of a move by December, according to data compiled by Bloomberg. Lacker expressed an inclination to raise the benchmark rate by 25 basis points in an effort to align the monetary policy with the progress that the USA economy has made.

“The dollar should struggle to gain significant upside traction this week because US interest rate expectations are unlikely to adjust much higher”, said Elias Haddad, a Sydney-based currency strategist at Commonwealth Bank of Australia.

The Fed should also pay more attention to emerging markets outside China, Yao said.

In a very critical vein, on Saturday the President of the St. Louis Fed, James Bullard, asked in a speech: “Why do the committee’s policy settings remain so far from the normal when the objectives have essentially been met?”

“You’d smooth it out, making every meeting the same”, he continued.

This article originally was published at 10:24 a.m.

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Lockhart told the Buckhead Rotary Club that the Fed had achieved its desired requirement of “further improvement in labor markets”, but the recent volatility cast doubt on the desired “reasonable confidence” that inflation will return to the Fed’s 2 percent target.

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