US Fed officials signal further gradual rate hikes

Frederick Owens
October 19, 2018

Analysts have pointed to rising interest rates, which can make stocks a less attractive investment.

Federal Reserve officials last month debated how high they should raise interest rates to achieve their economic goals, with some arguing that they might need to lift rates to a level that would modestly restrain growth.

This is because markets tend to "buy the rumour and sell the fact", which means that once an end to the Federal Reserve's rate hiking cycle is just around the corner, traders would be most likely to dump the Dollar anyway.

NO: The Fed was irresponsible to lower interest rates far too low for far too long.

Shanghai dived 1.7 percent as already strained relations between China and the U.S. took another hit after the White House said it plans to withdraw from an worldwide treaty on postal rates in a move aimed at pressuring Beijing. At the same time the United States borrowing rate has doubled in just 2 years and someday we will have to balance our ballooning budget as we continue to dump our fiscal burden on the next generations.

The Fed is contending with how to manage one of the longest economic expansions on record without triggering a recession. Shanghai's benchmark stock index tumbled overnight to close at a near four-year low and China's premier warned of risks to the economy. That will slow the economy down some and prevent overheating, which could lead to inflationary pressure. The minutes noted that the tax cuts Trump had pushed through Congress late last year along with the spending increases Congress approved at the beginning of this year were boosting economic activity.

Asian markets resumed their downtrend on Thursday as investors contemplated more interest rate hikes by the Federal Reserve, while Washington added to China-US frictions and Brexit negotiators struggle to find common ground.

The Fed now expects to continue raising rates until its benchmark overnight lending rate is around 3.40 percent in 2020. Here they are, listed roughly from most unusual to least.

The president has vehemently expressed his displeasure on multiple occasions.

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Meanwhile, talks between the two countries appear to have stalled, as Trump told FOX Business in an interview on Tuesday that he did not think China was ready to restart negotiations. Because - you look at the last inflation numbers, they're very low.

The release of the minutes comes amid growing tensions between the White House and the Fed, which is an independent agency.

Rate rises have become a divisive issue in the U.S., with Donald Trump repeatedly criticising monetary policy decisions and labelling the Federal Reserve his "biggest threat".

Economists said that the minutes supported the widespread view that the Fed is going to keep slowly raising rates in response to strong growth. If and when that happens, my sense is that the president will be thankful for the Fed.

When asked earlier this month about the president's comments, Powell shrugged them off, noting he's focused on the task at hand: keeping the economy steady. "We don't let other things distract us".

"The modernized version of the Taylor (1999) rule recommends a relatively subdued policy rate path over the forecast horizon - similar to the St. Louis Fed's recommended path, " Bullard said.

USA presidents usually remain silent on such issues in respect toward the Fed's independence.

Minutes from the Fed's latest policy meeting showed board members expect to hike borrowing costs as the world's top economy goes from strength to strength and inflation picks up.

"It has a long history of Fed governors ignoring what a president says, and I think this is likely to be the case here", said Kroszner, now an economics professor at the University of Chicago Booth School of Business at an global banking conference in Bali last week.

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