US Fed to raise rates if economy on track

Washington (Oct 10)  The Federal Reserve will raise interest rates this year provided slower global growth doesn't undermine forecasts for higher inflation, said two policy makers, while Fed Vice Chair Stanley Fischer said the word from his counterparts abroad was "please do it."

 "And we will do it, probably, at some point, but we're not going to do it at a time that is not suitable for the United States economy," Fischer told CNN International in an interview in Lima, where he is attending a meeting of the Group of 20 major industrialised nations.

 Officials last month kept the rate near zero, where it has been since December 2008, to see if slower Chinese growth undermines their forecast that US inflation will move back to the Fed's 2 per cent target, minutes of the September meeting released Thursday showed. Investors aren't buying it.

 "The core of the committee is not pleased with the market essentially saying 'the Fed will never hike, or at least not in 2015,"' said Carl Riccadonna, chief US economist for Bloomberg Intelligence in New York.

 Last month's FOMC decision, and a disappointing September US employment report, has sapped investors' confidence the Fed will be able to raise rates this year, as Fed Chair Janet Yellen has said she expects will be warranted.

 The probability of a 2015 hike is now priced around 40 percent in federal funds futures markets, compared to above 60 per cent ahead of last month's Fed meeting, based on the assumption that the effective fed funds rate will be 0.375 per cent after liftoff.

 "Policy makers do not want the odds of 2015 liftoff to fall too low - they want to preserve the option to hike," Riccadonna said.

Source: Business-Standard