Fed officials again flag December; see smooth rates liftoff

Wed Nov 18, 2015 3:37pm 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 off a rate hike smoothly despite fears of an abrupt market reaction.

Investors reacted by increasing the odds for a rate increase 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.

Sentiment for a December hike took firm hold at the Fed's October 27-28 policy meeting, according to meeting minutes released on Wednesday that showed a solid core of U.S. central bankers poised for liftoff.

The Fed's October statement helped convince skeptical markets that a rate hike may finally be imminent after several years of near zero rates. But the October session also saw central bankers begin grappling with longer-term issues that may be relevant to the pace of subsequent rate hikes, including whether the U.S. economy's lower long-term potential means low interest rates will become a permanent norm.

For now, however, Fed officials seem confident that the central bank will meet its twin goals of full employment and stable two percent inflation.   Continued...

 
Federal Reserve Chair Janet Yellen delivers remarks at the Federal Reserve Conference on Monetary Policy Implementation and Transmission in the Post-Crisis Period in Washington November 12, 2015.  REUTERS/Carlos Barria