Fed debate on risks intensifies around post-September rate hikes

At the same time, there are potential headwinds from trade disputes, waning fiscal stimulus and the lurking danger of financial instabilities that tend to build up over long periods of low policy rates during lengthy expansions.

Aug 23, 2018 04:08 IST India Infoline News Service

As U.S. central bankers prepare to raise borrowing costs next month, their discussion about how high to lift their target interest rate is intensifying.

Their forecasts call for strong labour markets and robust growth at a time when inflation is already slightly above their goal. At the same time, there are potential headwinds from trade disputes, waning fiscal stimulus and the lurking danger of financial instabilities that tend to build up over long periods of low policy rates during lengthy expansions.

The minutes released Wednesday from the Federal Open Market Committee’s July 31-August 1 meeting left little doubt that Chairman Jerome Powell plans to raise the benchmark lending rate next month, saying “it would likely soon be appropriate to take another step in removing policy accommodation.”

“They are clearly having a debate about how much they hike,” said Seth Carpenter, chief U.S. economist for UBS Securities Inc. and a former senior adviser at the Fed Board.

“They did talk a lot about risks, and downside risks from trade in three or four areas.”

The signals came despite scrutiny from President Donald Trump, the man who appointed Powell and who told Reuters in a recent interview that he was “not thrilled” with the Fed’s tightening.

Source: Bloomberg

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