Federal Reserve signals interest rate hike ‘fairly soon’

Federal Reserve officials expressed confidence they can raise interest rates gradually, while a hike "fairly soon" might be appropriate to avoid the risk of an overheated economy, minutes of Federal Open Market Committee's latest meeting showed.

“Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labour market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased,” the minutes released Wednesday in Washington said.

The record of the January 31st-February 1st gathering showed Fed officials wrestling with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds a rising dollar may pose. The discussion of a rate hike “fairly soon” was tempered by other comments that indicated little concern about near-term inflation risks.

Modest risk

Many FOMC voting members “continued to see only a modest risk of a scenario in which the unemployment rate would substantially undershoot its longer-run normal level and inflation pressures would increase significantly,” the minutes said.

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A few participants “noted that continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the committee greater flexibility in responding to subsequent changes in economic conditions.”

US central bankers left the target range for their benchmark lending rate unchanged at 0.5 per cent to 0.75 per cent at the conclusion of the meeting.

Fed chair Janet Yellen told US Congress in her semi-annual testimony last week that "a further adjustment of the federal funds rate would likely be appropriate" if the economy continues to evolve in line with their expectations.

– (Bloomberg)