Further US rate hikes 'most likely' needed: Fed minutes

Posted October 20, 2018

President Donald Trump's repeated complaints about rising interest rates appear to be having no impact on policy so far.

During the meeting, which was held on September 25-26 policymakers said they believed further rates rises were required to stop inflation from shooting the 2pc inflation target and to reduce the risk "posed by significant financial imbalances".

Members of the Federal Open Market Committee, which determines the Fed's monetary policy, didn't bother to discuss comments made by Trump warning against further increases in the central bank's benchmark interest rate, according to minutes of the September 25-27 meeting released Wednesday.

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While a standard Taylor Rule would recommend much higher interest rates than the Fed now envisions - a fact often used to criticize the relevance of policy rules in general - Bullard said that adjusting the rule for changes in the economy shows that current policy is on target.

"It's going too fast, because you look at the last inflation numbers - they're very low", he said.

A better-than-expected retail sales print on Wednesday soothed fears Africa's most industrialised economy was still wallowing in recession, and mining production figures due at 0900 GMT will be watched for further signs of recovery. The Fed has always been seen as needing to remain free of political pressure to properly manage rates, and presidents have generally respected that independence, especially publicly.

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In remarks Thursday to the Economic Club of NY, he suggested that a tick up in the economy's potential growth rate, if realized, could warrant a slower pace of rate hikes than would otherwise be appropriate. "They could probably raise rates faster, which is not what he is exactly looking for".

As opposed to a mild brake on the economy, Bullard argued that rates that high "would be moving quite a ways into restrictive territory".

The Fed also took notice of clouds forming on the horizon. Accommodative monetary policies creating artificially low interest rates and money-printing stoked too much debt reaccumulating. Forecasting interest rates is not exactly a precise science but the US economy appears to have real strength now - let's keep it that way. This is because other central banks have not moved from the low interest rates. "That is until mid-2019, when we expect a drop in GDP growth to below-potential to force the Fed to the sidelines", says Paul Ashworth, chief North American economist at Capital Economics.

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Meanwhile, the S&P 500 Futures traded 0.33 percent lower at 2,807.00 by 10:40GMT, while at 10:00GMT, the FxWirePro's Hourly Dollar Strength Index remained neutral at -3.86 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). As the Fed increases rates they will see how the market reacts for both the short and long term.