Despite criticism, Fed sees need for more rate hikes

Despite criticism, Fed sees need for more rate hikes”

But, likening the central bank's job to that of a pilot, he said the Fed should continue to hold a steady course and only apply a "more athletic response" if one of those signals moves decidedly in one direction. This is mostly because of the central role the United States dollars plays in the global economy because it acts as the reserve currency. With a huge balance sheet driven by previous quantitative easing and an interest rate just slightly over inflation, monetary policy is still highly accommodative. The QE was essentially a process of printing money to buy assets such as mortgage backed securities. Inflation is finally picking up to the level central bankers consider healthy for the economy. This was less than a year after the Fed ended the QE program.

Antonio Tajani, the president of the European Parliament, said May offered them "nothing substantially new" to discuss when they retired for dinner afterwards without her.

As opposed to a mild brake on the economy, Bullard argued that rates that high "would be moving quite a ways into restrictive territory". "With interest rates higher there's a lot less cushion to smooth away those uncertainties".

Their assessment is likely to anger President Trump, who over the past week has repeatedly attacked the Fed for raising rates last month, saying that it is acting too quickly to constrain a booming American economy.

At 0640 GMT the rand was 0.26% weaker at R14.2900 per dollar, having risen to R14.1050, its best since 1 October, as the NY session kicked off before the release of the Fed minutes breathed life back into the greenback rally. In the minutes released yesterday, all the members were of the view that more tightening was needed.

The Fed has raised rates three times this year and has penciled in a fourth hike, which is expected in December.

Instead, some members of the committee believed that the Fed would need to impose "modestly restrictive" conditions on the economy, the minutes show.

Still, a "couple" of participants said they would oppose this unless clear danger signs - an overheating economy and mounting inflation - were to arise.

This statement did not go well with the USA president who has accused the Fed of working against his agenda.

"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. With economic growth accelerating and wages increasing due to a historically low unemployment rate, it is important for the Fed to maintain a disciplined approach in managing inflation. Some of President Trump's options for getting a low interest rate are complex, others are simple.

"Periods when the US interest rate is going up, when the Fed is tightening, are nearly by definition periods when the expected rate of return on capital in the going down relative to the rest of the world - and that means long-term capital will flow out of the dollar", Kaletsky said.

The minutes sent the U.S. dollar higher on Wednesday and it held its gains in Asian trade against its peers, while high-yielding and emerging market currencies were deep in the red. The US dollar has strengthened against the yuan in recent months, prompting speculation that this month's report might contain formal claims of manipulation.

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