Fed rate hike may come in Dec. to preserve credibility

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24 November 2016

Baku-APA. The Federal Reserve's long-awaited rate hike decision may be as soon as next month APA reports quoting Anadolu Agency.

 

Minutes from the November meeting of the Federal Open Market Committee (FOMC) show that its members are increasingly concerned over the bank’s credibility if they keep failing to raise the benchmark interest rate.

 

"Most participants [of the FOMC] expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon," the Nov. minutes read.

 

"Some participants ... argued that to preserve credibility, such an [interest rate] increase should occur at the next meeting," they added.

 

The Fed has kept the rate unchanged for seven times this year, since making a rate hike last December.

 

In early 2016, experts were anticipating at least two increases this year, but with a single meeting left in the annual schedule, that is now out of the question, and the bank may find itself at the receiving end of intense criticism if it skips this year entirely.

 

The FOMC members also noted that keeping the interest rate low for too long may undermine the market, investors, and capital.

 

Many among them “judged that ... an extended period of low interest rates risked intensifying incentives for investors to reach for yield, potentially leading to a mispricing of risk and misallocation of capital," according to the minutes.

 

Fed Kansas City head Esther George and Cleveland Fed President Loretta Mester voted on Nov. 2 in favor of a rate hike, but the other eight members of the FOMC were against it, the minutes show.

 

The majority of the FOMC members said in the last meeting that they still awaited stronger indicators towards the U.S. economy. They, however, also underlined the highlights in the economy as justifying a case for a rate hike.

 

The pace of real GDP growth was forecast to rise over the second half of this year as compared to the first half, the minutes say, adding that the near-term forecast for consumer price inflation was “somewhat higher”.

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