Fed officials jolt market with talk of pending rate hike

Tue Feb 28, 2017 11:35pm EST
 
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By Ann Saphir and Jonathan Spicer

SANTA CRUZ, Calif./NEW YORK (Reuters) - A handful of Federal Reserve policymakers on Tuesday jolted markets into higher expectations for a March U.S. interest rate increase, with comments that suggested rate-setters are worried about waiting too long in the face of pending economic stimulus from Washington.

New York Fed President William Dudley, among the most influential U.S. central bankers, said on CNN that the case for tightening monetary policy "has become a lot more compelling" since the election of President Donald Trump and a Republican-controlled Congress.

John Williams, president of the San Francisco Fed, said that with the economy at full employment, inflation headed higher, and upside risks from potential tax cuts waiting in the wings, "I personally don’t see any need to delay" raising rates.

"In my view, a rate increase is very much on the table for serious consideration at our March meeting."

In remarks to a joint session of Congress, Trump offered little detail about planned tax cuts or new infrastructure spending beyond the broad strokes he offered during the election campaign -- leaving policymakers with little to add to their analysis.

Williams, unlike Dudley, is not a voter this year on policy, but his views are seen as influential among his colleagues.

The comments sparked a flurry of selling in the bond market, with the two-year Treasury yield jumping to its highest level since December.

Interest rate futures implied traders saw a nearly a 57 percent chance the Fed would raise rates at its March 14-15 meeting, up from roughly 31 percent late on Monday, and around 20 percent a week ago, according to Reuters data.   Continued...

 
William Dudley, President of the New York Federal Reserve Bank, speaks at Brooklyn College in the Brooklyn borough of New York, March 7, 2014.  REUTERS/Keith Bedford/File Photo