All signs point to more Fed rate hikes in 2018

23 February, 2018, 09:05 | Author: Kathy Ellis
  • Tell us what you think: Where could rising yields do the most damage?

Low productivity growth, caused in part by weak investment, is hampering long-term USA economic growth prospects and should be a critical focus for policymakers, Quarles said.

In an interview on Bloomberg Television, Minneapolis Fed President Neel Kashkari said he has "hope" that inflation is picking up (, and that the US central bank "can't make policy based on market blips, up and down".

The Fed cited the strength of recent economic data, accommodative financial conditions and the impact of a major tax cut that took effect in January, which it said might deliver a larger-than-expected increase in near-term economic growth.

Philadelphia Federal Reserve Bank President Patrick Harker on Wednesday said he still thinks just two interest-rate hikes this year is "likely appropriate", but signaled he is open to more if needed. Fed staff projected they expect to meet that goal by 2020.

The spending boost has caused some economists to project the Fed will need to raise rates faster this year and next to keep the economy from overheating.

In December, the Fed's preferred inflation gauge, excluding volatile food and energy categories, rose 1.5% from a year earlier.

Most market players believe Fed policymakers will decide on an additional rate hike at their next meeting in March.

"The minutes were more balanced in my view as the recent uptick in volatility will have as much bearing on Fed policy decisions as the subtle rise in inflation", said Stephen Innes, APAC trading head for OANDA.

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The minutes of the Fed's late January meeting, made public Wednesday, showed an even rosier view of the economy than officials held at the end of previous year.

But inflation pressures weakened, puzzling Fed officials and arguing in favor of slowing the pace of rate rises.

However, a couple of officials expressed their concerns that there was little evidence of meaningful improvement in inflation outlook.

But officials haven't shown conviction in that outcome, noting companies might instead use higher after-tax profits to reduce debt, buy back stock or acquire other firms.

Participants also noted that employers across the United States had difficulty filling openings or retaining workers with the unemployment rate at a 17-year low.

"We debate each word change in the statement - a lot of debate goes into those - and I think "further" is meant to say continuing the current path that we're on", he said in a Bloomberg interview with Michael McKee before the minutes were published.

At the January meeting, "almost all" Fed members - more than previously - said they expect inflation to hit the bank's 2% target over the medium term, bolstering the case for future rate rises.


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