Fed officials again flag December; see smooth rates liftoff

Wed Nov 18, 2015 1:53pm EST
 
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By Jonathan Spicer and Rodrigo Campos

NEW YORK (Reuters) - Federal Reserve officials on Wednesday continued to flag December as a likely time for interest rates to rise after seven years near zero, with two expressing confidence they will be able to pull it off smoothly despite fears of an abrupt market reaction.

Investors reacted by increasing the odds of a rate hike next month to 72 percent, from 64 percent on Tuesday, based on interest rate futures prices.

Cleveland Fed President Loretta Mester repeated her position that the U.S. economy is now strong enough to absorb a modest policy tightening. Atlanta Fed President Dennis Lockhart, sitting alongside her on a panel in New York, said global financial markets have settled since the August turmoil that caused the U.S. central bank to delay raising rates.

"I am now reasonably satisfied the situation has settled down ... So I am comfortable with moving off zero soon, conditioned on no marked deterioration in economic conditions," Lockhart told a conference of bankers, traders and regulators.

"I believe it will soon be appropriate to begin a new policy phase," he said, adding he will monitor economic data between now and a meeting on Dec. 15-16, for which he has a vote on policy. Mester regains a vote next year under a rotation.

Rob Kaplan, the Fed's newest policymaker, declined to use his first public appearance as president of the Dallas Fed to comment directly on the timing of a rate hike, but expressed confidence that inflation will rise back to the Fed's 2 percent goal over the medium term. The Fed has said it needs exactly that confidence before raising rates.

Once rate hikes start, he said, the Fed will reassess conditions at each meeting and will pause further rate hikes if needed.

The comments came ahead of the publication on Wednesday of minutes of an October policy meeting at which the Fed, wanting to send a message to skeptical markets, issued a statement that specifically referenced December as a possible time for rates liftoff.   Continued...

 
William Dudley, President and CEO of the Federal Reserve Bank of New York, addresses the Economic Club of New York at a luncheon in the Manhattan borough of New York City, November 12, 2015. REUTERS/Mike Segar