Fed’s Williams, citing signs of imbalances, wants 2015 rate hike

29 Sep 2015 | Author: | No comments yet »

Evans Says Fed Should Delay Liftoff, Inflation Risks Overblown.

The Bank of England is still expected to raise interest rates in early 2016 but that prediction now rests on a knife’s edge after the US Federal Reserve delayed its first hike, a Reuters poll of economists found. Federal Reserve Bank of Chicago President Charles Evans on Monday said rate increases are likely unwarranted until some time well into next year because of inflation falling persistently below levels where central bankers want it to be. “Before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher,” Mr.The flurry of opinions following the Federal Reserve’s decision to hold interest rates near zero at its September meeting has done little to provide clarity on future interest rate policy, market watchers told CNBC on Monday. “I think they’re trying to be transparent — which you can’t argue against transparency — but there is such a thing as an overload of information, and I think that’s what a lot of investors are getting right now,” Robert Luna, Surevest Capital Management CEO, told CNBC’s “Power Lunch” on Monday. Median expectations in the survey of over 60 analysts show the bank increasing the bank rate to 0.75% in the first quarter of 2016 from the current record low of 0.50%.

Evans said. “I believe that it could well be the middle of next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. Twenty-nine economists pencilled in a raise while 25 expected no change, making it the closest call since the timing of the first hike moved to early 2016 from end-2015 seven months ago.

Evans cautioned that core inflation, which excludes volatile energy and food prices, would probably not have returned to 2 percent by the end of 2018, adding that a slower growth abroad and declining measures of inflation expectations may make the wait even longer. Evans also criticized arguments made by some of his FOMC colleagues that waiting too long to begin raising rates could force the central bank to eventually tighten faster to control inflation and risk causing an economic downturn by doing so. Because of the Federal Open Market Committee’s delay in raising the (Fed) funds rate target, it seems likely the UK rate rise will occur later than I previously expected,” said Stephen Lewis at ADM Investor Services. The unemployment rate was 5.1 percent in August, near the 4.9 percent rate the median committee member deems consistent with maximum employment. “My own assessment is in line with this projection,” Evans said. Investors want to play it safe in an environment in which Fed members are sending mixed signals and walking back earlier comments, O’Neil Securities Director Kenny Polcari said. “Safe at the moment is to raise some cash,” he told “Power Lunch.” Stephen Guilfoyle, director of NYSE floor operations for Deep Value, noted that investors were moving into safe haven Treasurys and out of every equity sector, including utilities. “Usually they move well with Treasurys here, so right now you’re seeing some people protect their money.” Investors are focusing on “every little bit of data” available because the Fed continues to say that its decision to hike rates remains data-dependent, Kate Warne, investment strategist at Edward Jones told “Power Lunch.” That mantra, combined with the differing views from Fed officials, is not giving investors confidence. “I think the Fed needs to do a better job of communicating what it’s really planning to do as opposed to all the various options that different people think it might take,” she said.

Most Fed officials still believe they will raise rates this year, and influential New York Fed leader William Dudley said earlier Monday he still foresees pushing the now near-zero fed target rate higher before 2015 ends. Forecasts of rising inflation has proved consistently wrong, yet officials remain optimistic that normal economic dynamics should get prices higher over time. Evans told reporters after the speech that he doesn’t see his outlook for rate policy as being wildly different than outlooks held by his fellow policy makers. “I still think there are good arguments” to holding off for a while longer, and he said that he could see as many as three 0.25 percentage point rate increases happening over the course of 2016. Evans said, adding he wouldn’t have a big problem overshooting the goal by a modest amount for a short period. “Failure to defend our inflation goal from when we are considerably below target may weaken the credibility of this claim,” he said. But he was more upbeat about hiring. “Economic growth appears to have enough momentum that I am fairly confident that we will reach our maximum employment goal within a reasonable time,” he said.

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