With financial markets increasingly predicting rates will not rise until next year, Fed Chair Janet Yellen attempted to set the record straight last week when she said the central bank was still on track to move before year end.
Federal Reserve Bank of San Francisco President John Williams has said he still expects to raise interest rates this year, in remarks that also offered a warning the housing sector may be seeing the first signs of overheating.
While a strong dollarstrong> and cheap <strong>oilstrong> have kept <strong>inflationstrong> below the Fed’s <strong>2strong> percentstrong> target, those factors will dissipate and <strong>inflationstrong> should rise back to the Fed’s goal over the next two years, he predicted.
Wednesday’s flash reading of September’s yearly euro zone inflation is expected at zero, although core inflation, which excludes volatile energy prices, is seen at 0.9 percent for a third consecutive month.
The Fed’s twin objectives for its monetary policy are to achieve maximum employment and stable inflation, which it targets at 2 percent.
She also emphasized the Fed would tighten gradually once it had begun to raise rates, and Dudley repeated that assurance.
Gold futures for December delivery slipped 1.2% to settle at $1,131.70 an ounce at 1:57 p.m. on the Comex in New York. Six and a half years ago, the Federal Reserve lowered the rates to almost zero when the US economy hit a recession and needed a boost. The Fed chose not to raise rates, citing global economic pressures and concern about excessively low inflation. That includes developments overseas, particularly in China, where slowing growth has sapped commodity prices, which is helping to suppress USA inflation.
Mr. Evans told reporters that if the Fed had to provide new stimulus to the economy, restarting its purchases of long-dated bonds will be the best path. He said putting in place negative interest rates which essentially charge depositors for parking cash at the bank is “challenging”.
ASB’s head of FX Tim Kelleher says December is the more likely option, as in October there won’t be a press conference and if rates are to shift, Ms Yellen will want to talk about it – rather than just putting out a release.
“We continue to expect further rate increases in Iceland in the coming months”, Jessica Hinds, an economist at Capital Economics said.
Dudley said the first hike could come as soon as October as policy makers take stock of an improving economy.
Does the data support a rate hike?
Yellen’s comments may help clarify doubts about the Fed’s intentions that deepened last week after its latest policy meeting ended.
“I found them quite confusing and surprising”, he said.