Saturday 1 October 2016

Interest rate hike could soon be warranted, Fed officials say

Published 17/08/2016 | 19:51

The Fed noted that the job market had rebounded from a brief slump
The Fed noted that the job market had rebounded from a brief slump

The Federal Reserve could soon increase interest rates after officials said near-term risks to the US economy have subsided.

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Minutes of a US central bank meeting held on July 26 and 27 show that officials were encouraged by a rebound in job growth, but they did not indicate when they would be likely to raise rates.

They also took note of a stabilisation of financial markets after a bout of turbulence triggered by Britain's vote to leave the European Union on June 23.

The Fed officials believed those developments had lessened the risks for the economy in the short run.

The minutes show that as a result, the officials thought a rate increase "was or would soon be warranted".

The minutes released on Wednesday closely parallel the message the Fed sent in a statement it released after its July meeting.

In that statement, the Fed noted that the job market had rebounded from a brief slump.

Still, it said it planned to monitor global economic threats and financial developments to ensure that they do not slow the economy.

This week, William Dudley, president of the Federal Reserve Bank of New York and a close ally of Fed chair Janet Yellen, said in a television interview that a September rate hike is "possible".

Mr Dudley said he thought that solid job growth would continue and that the sluggish pace of the US economy would pick up.

However, as the Fed itself has done repeatedly, he stressed that any policy action would depend on the health of the most recent economic data.

Although some economists say they think the Fed will be ready to raise rates next month, most have said they think the policy-makers will take no action before December.

The Fed's July decision to leave rates alone was backed by a 9-1 vote. Esther George, president of the Kansas City Fed, dissented in favour of an immediate rate increase.

In December last year, the Fed raised its benchmark lending rate from a record low near zero, where it had stood since the depths of the 2008 financial crisis.

However, in recent months, turbulence in financial markets and concerns about China and weakening global growth have persuaded the Fed to keep rates on hold.

Fed officials have also expressed concern about the tepid pace of US growth, weakness in worker productivity, excessively low inflation and the long-term consequences of Britain's vote to leave the EU.

Investors will be paying close attention to a speech that Ms Yellen will give on August 26 to an annual conference of central bankers in Jackson Hole, Wyoming, for any further clues about the Fed's timetable for a rate hike.

AP

Press Association

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