Officials at the US Federal Reserve have announced that they would raise interest rates very soon.
US Fed To Raise Interest Rates as Soon as March
According to the US Federal Reserve, if the economy remains strong, there are chances that interest rates would be increased as early as March.
Economic analysts have been predicting a June raise.
Even then, the officials do not seem to be unanimous on the precise timing of the rate rise given the continued uncertainty over Trump’s economic policies.
Some of the officials are concerned that unemployment could fall significantly below the 4.8% target set by the Fed. The result would be pressure on inflation, forcing the Fed to increase interest rates much faster than is expected on the financial markets.
As of December, the US unemployment rate was at 4.7% but climbed to 4.8% in January.
According to Paul Ashworth, senior economist at Capital Economics, “The Fed minutes uses the phrase “fairly soon” this clearly leaves the door open to a March rate hike…but there remains a possibility that the Fed will push it until June.”
Others including ISH Markit said the information in the minutes and other comments made by officials recently indicated a strong possibility of an interest rate hike in March.
It added that the Fed would no longer have an excuse not to raise interest rates if employment data and inflation tallied with the recent trends.
Ian Shepherdson, senior economists at Pantheon Macroeconomics said the upcoming rate hike would likely come in May and not March unless the employment rate in the US increased significantly by end of February.
The Fed minutes further indicated that some of the Fed officials suggested that the central bank change the wording of its policy statement. They argued that the bank’s plan to raise interest rates ‘gradually’ could easily be misinterpreted as meaning the bank would raise rates only once or twice each year.
In its meeting that took place on 31 January to1 February, the Fed elected to leave interest rates unchanged.
Key interest rates were increase by 0.25% in December to 0.5% to 0.75%.
Following its rate increases in December 2015, the Fed only raised rates after waiting a full year.
The central bank in the US maintained a positive outlook of the economy. In its first meeting since President Donald Trump took office, the Federal Reserve elected to keep interest rates on hold in the range of 0.5% to 0.75% from last year.
In an earlier statement, the Fed said that economic activity and the job market had demonstrated robust strength and sentiments around these variables had improved.