Federal Reserve officials today continued to flag December as a possible time to raise interest rates after seven years near zero, with two expressing confidence they will be able to pull it off smoothly despite fears of an abrupt market reaction.
Reuters reports investors reacted by increasing the odds of a rate hike next month to 72%, up from 64% on Tuesday, according to futures markets.
Cleveland Fed President Loretta Mester repeated her position that the U.S. economy is now strong enough to absorb a modest policy tightening. Atlanta Fed President Dennis Lockhart, sitting alongside her on a panel in New York, said global financial markets have settled since the August turmoil that caused the U.S. central bank to delay raising rates.
“I am now reasonably satisfied the situation has settled down … So I am comfortable with moving off zero soon, conditioned on no marked deterioration in economic conditions,” Lockhart told a conference of bankers, traders and regulators this morning.
“I believe it will soon be appropriate to begin a new policy phase,” he said, adding he will monitor economic data between now and a meeting on Dec. 15-16, for which he has a vote on policy. Mester regains a vote next year under a rotation.
The comments came ahead of the publication today of minutes of an October policy meeting at which the Fed, wanting to send a message to skeptical markets, issued a statement that specifically referenced December as a possible time for rates liftoff.
The comments were the latest in a string of communications from Fed officials meant to encourage global markets to prepare for the first U.S. rate hike in nearly a decade. The policy change is expected to accelerate an ongoing market direction of strengthening the U.S. dollar and sucking funds from emerging markets.
