Washington – Three Federal Reserve policy makers including the president of the San Francisco Fed, John Williams, argue that the decision for a rate hike may still be on the table now that the economy is on solid footing, giving them confidence in continued economic and labor market growth.
After the policy setting the Federal Open Market Committee (FOMC) voted on Thursday, to leave rates unchanged, many policy makers are still confident that rates will increase by 2016, especially with two remaining meetings for the Fed’s on 2015. In holding rates steady, the Fed noted international uncertainties and subdued inflation.
“It was a close call in my mind, in part reflecting the conflicting signals we’re getting […] I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year.” Williams said of the decision during a speech in Armonk, New York.
According to Fed meeting documents, 13 of 17 policy makers still expect rates to increase in 2015. The Committee will gather again on October 27 and 28 and in December 15 and 16. The Fed’s policy on interest rates has been near zero since 2008.
Williams acknowledged the risks from a slowdown in China and global downward pressure on inflation, noting that a rate rise in 2015 is not guaranteed. He also said full U.S. employment should be achieved “in the near future”. Inflation, while still too low for comfort, should gradually move back to a 2-percent goal.
The Fed’s twin objectives for its monetary policy are to achieve maximum employment and stable inflation, which it targets at 2 percent. The unemployment rate dipped to 5.1 percent in August. Williams said he expects the U.S. to reach full employment by the end of this year or early in 2016. By contrast, inflation remains subdued, with the Fed’s preferred indicator at just 0.3 percent.
Source: Reuters