Dallas Fed President Hints at Three Rate Hikes This Year

By Swati Pandey

By Swati Pandey

The continued rebound by treasuries came as the Federal Reserve issued its monetary policy report to Congress, with the central bank hinting that it still plans three interest rates hikes in 2018.

Since 2008 the Federal Reserve has maintained an easy money fiscal policy that has been responsible, in part, for the steady rise of the stock market as well as fostering an environment of historically low interest rates.

While the consensus is that Powell won't depart too radically from the policies of his two immediate predecessors, some analysts have latched onto remarks he made in late 2012.

Most of the committee believe that inflation would perk up. S. price pressures still appear modest for now, markets are fully pricing in three rate hikes this year, one more than was seen just a few months ago.

Broader concerns have lingered globally over the last few weeks, including how far and fast US interest rates may rise and what that would mean for global borrowing costs, risk appetite and business confidence.

The Fed considers a 2-percent annual increase in the personal consumption price index to be the ideal level of inflation to maintain steadily growing economy.

In its semiannual report to Congress, the Fed said inflation remains subdued in the United States and other advanced economies, and while the USA economy is beyond full employment there does not appear to be a labor shortage. "Although employers report having more difficulties finding qualified workers, hiring continues apace, and serious labor shortages would likely have brought about larger wage increases than have been evident to date".

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In conducting the research, the four economists studied surprise Fed announcements on the portfolio, the market response, and the extent to which Reuters news articles credited the central bank for the market moves.

Most of the Fed members see the cost of living moving up towards their inflation goal of 2 per cent over the "medium term".

The report spoke at length about low productivity growth that probably was holding back wage gains. The stock closed 10.5% higher. "Leverage in the nonfinancial business sector has remained high, and net issuance of risky debt has climbed in recent months".

That said, the Fed might react to market swings, should they continue, by implementing rate hikes as well.

Longer-term the duration of Wall Street's bull run, which began way back in March 2009, suggests that the good times are nearing an end and Powell will have to confront the challenge of another recession in the U.S. sometime over the next four years.

"We want more shock absorbers out there and really. the main shock absorber is the ability to reduce the fed funds rate, which means that you want to get to a higher inflation rate so that the pre-shock fed funds rate is 4 [%] and not 2", said Paul Krugman, the Nobel Prize-winning economist. "We want more shock absorbers out there and really. the main shock absorber is the ability to reduce the fed funds rate, which means that you want to get to a higher inflation rate so that the pre-shock fed funds rate is 4 and not 2", said Paul Krugman, the Nobel Prize-winning economist and professor at City University of NY.

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