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Future Rate Hikes Not A Certainty, Stress US Fed Officials

Future Rate Hikes Not A Certainty, Stress US Fed Officials
The US Federal Reserve would only engage in raising rates in the short term while accounting for the economic conditions, stressed two Federal Reserve officials.
The analogy of the Fed as a hiker was used by Cleveland Fed President Loretta Mester in a television interview. Mester said that just as a hiker who is has embarked on a long trek has his eyes fixed on the destination in mind, so does the fed. But like a hiker, the Fed would take note of the debris on the trail which may make it necessary to make some reassessment of the trek plan. She said that the plan may be abandoned altogether if the hiker discovers a lake.
 “We’re going to be using what the economy is telling us, and the data that comes in, to inform our outlook and that is going to determine” the hiking path, Mester said.
Stocks may have been volatile in recent times because of the slowing of the economy, said the Cleveland Fed president. But the slowdown will be minimal, Mester said and added that she expects the 2019 annual growth rate to be around 2.75 per cent. That rate should be enough to keep the labor markets pressurised and risk inflation. Markets appear to be functioning to date, she said. it looks like markets are going through a “natural” reassessment of the outlook even though the Fed is paying attention.
Before the end of 2019, four quarter-point interest rate hikes have been fixed by the Fed. With those hikes, the interest rates would be the equal to whet the Fed estimates would be “neutral” and at a level which would not be boosting growth any longer.
The ability of the Fed to tighten so much has always been doubted by the market.
The opinions of Mester were echoed in another separate television interview by Dallas Fed President Robert Kaplan and said that the Fed would not be “rigid or predetermined.”
In 2019 and 2020, there would be a waning down of fiscal stimulus and then “the trick” for the Fed is “how to get the judgment and the balance right between moving toward a neutral stance but avoiding being predetermined or rigid in what that destination ultimately is and the pace of it,” Kaplan said.
Three rate hikes till next June was supported on an earlier occasion this month by Kaplan, in case the economy grows as expected.  He however said that nothing can be said with certainty whether more j\hikes would be required or not beyond that period.
The comments that were made by Mester and Kaplan were the last such public comments that would be made by Fed officials before the so called “blackout” period when they would be get busy to prepare for the next meeting of the Fed on Nov. 7-8. Typically this blackout time is used by Fed officials to debate internally about policy decisions.

Christopher J. Mitchell

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