Fed Monitoring Inflation Evidence Before Rate Hike

A number of top Federal Reserve officials want more convincing evidence that U.S. inflation is on a healthy upswing before embarking on what they expect will be a very gradual course of interest rate increases.

Policymakers at the central bank this week began to flesh out their thinking on the likely path for U.S. interest rates, with several calling for restraint and suggesting a willingness to push the economy past full employment to ensure a robust recovery and vanquish deflation risks.

William Dudley, the head of the powerful New York Fed, who is normally aligned with thinking at the central bank’s Washington board, was the first to make the case for running the economy “hot” as a way to revive sagging inflation.

 
His remarks were buttressed by calls for rate-hike patience from two of the Fed’s foremost “doves” in what amounted to a strong push-back against vocal inflation hawks who want to start tightening monetary policy sooner rather than later.

“You want to make sure that when you do lift off, that you actually are successful, that you don’t lift off and then it turns out that the economy weakens and you have to reverse course,” Dudley said on Monday. “We need the economy to run a little hot for at least some period of time to push inflation back up to our objective.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza