Fed President Urges Rate Hike despite Deflationary Housing
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A Federal Reserve president has said he wants an interest rate hike immediately, although new data suggests the housing market is turning weaker in the country.
Atlanta Fed President Dennis Lockhart said at a conference Tuesday that the job market has improved sufficiently to justify an interest rate hike, adding that he supported a rate hike in September. Lockhart’s hawkish viewpoint is in the minority.
A Federal Reserve president has said he wants an interest rate hike immediately, although new data suggests the housing market is turning weaker in the country.
Atlanta Fed President Dennis Lockhart said at a conference Tuesday that the job market has improved sufficiently to justify an interest rate hike, adding that he supported a rate hike in September. Lockhart’s hawkish viewpoint is in the minority.
The bulk of the Federal Open Market Committee voted against a rate hike in September, and has hinted to markets that a rate hike later in the year is not inevitable, if still a strong possibility.
Low Inflation Persists
Lockhart pointed to the risk of strong and rising inflation because of improvements in the job market in turn causing inflation rates to spiral out of control. However, his Federal Reserve Bank also announced on the same day that inflation expectations have moderated at 1.8%, unchanged from October expectations.
Inflation expectations have remained below 2% for all of 2015, and the core CPI has shown year-over-year inflation increases below 2% for most of the year. However, earlier this week the Bureau of Labor Statistics saw a 2.5% year-over-year increase in prices in the core Consumer Price Index for urban-based consumers, and some analysts expect that inflation rate to continue to increase for the remainder of the year.
Slow Housing
The hawkish tone runs counter to declining trends in homebuilding alongside the weak inflation expectations. According to the Census Bureau, new residential construction fell by 11% in October, with privately owned housing units authorized by building permits showing a rare sign of strength. Overall, housing completions fell by 6% from September. The fall in housing starts follows an NAHB study that shows November saw homebuilding activity weakening from the prior month.
Strong Language from the Fed
The Federal Reserve has quietly strengthened the signal of an interest rate hike, according to minutes from the Federal Reserve Open Market Committee’s October meeting, released Wednesday.
In these minutes, the FOMC said, “it may well be appropriate” to increase its target interest rate in December, emphasizing that increases would be gradual.
“Members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting,” the minutes said on the wording.
For the first time since 2006, a majority of Federal Reserve officials said they expected to raise interest rates this year, with a shift that would “remove policy accommodation gradually.”
The U.S. Treasury largely shrugged off the news, with the 10-year Treasury yield virtually unchanged in Wednesday trading. Short-term Treasury yields have risen in the last month, but remain at historic lows. The 3-month Treasury yielded 0.12% shortly after the news.
