Fed Mulling When And How Fast to Raise Rates

For the Federal Reserve, deciding when to raise rates for the first time in nearly a decade has become the easy part.

The harder call, and one increasingly preoccupying U.S. central bankers, is how fast to move after that, navigating stuttering global growth and nervous markets on the Fed’s long journey back to pre-crisis policies.

Betting on the “lift-off” of rates from near-zero has become less of a gamble, particularly after an exceptionally strong jobs report last Friday. After months of wavering as the global economy appeared to weaken, investors have pegged that first rate rise to the middle of next year, and seem to have accepted that the U.S. economy can go its own way.

Recent conversations with Fed policymakers, staff and economists point to an internal debate shifting from the first rate move to the pace of increases thereafter. Stagnant inflation has become less of a concern in light of continued improvement in labor markets. Barring a serious shock, policymakers have indicated they will press ahead with liftoff in coming months, then move cautiously to ensure they do not stifle the recovery by acting too fast.

“Getting started is probably helpful… Otherwise you keep deferring and keep deferring and then the market just keeps pushing this further out… You want to break the glass,” said one former Fed official familiar with the debate. From that point on “if inflation stays low you can be in a little bit less of a rush… You don’t have to go every meeting.”

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