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22 Dec 2015
Explaining ‘gradual’ Lockhart said Fed likely to hike “at every other meeting”
FXStreet (Mumbai) - The U.S. Federal Reserve raised the interest rates from its record low levels for the first time since 2006. On 16th December the Fed finally increased the Fed funds target range by +25bps to 0.25%-0.5%. Speculations run high as markets try and gauge the number of subsequent rate hikes that can be expected in 2016.
The Fed stated the subsequent rate hikes will be gradual and dependent on the incoming economic data. The FOMC will raise rates by 25 bps four times in 2016. Another four rate hikes can be expected in 2017. Markets however believe that the dominant economic condition would be such that the central bank will not be able to raise rates more than two times in the next fiscal.
The question that has now arisen is what does Fed’s “gradual” actually mean. Atlanta Fed President Dennis Lockhart who voted in favor of the Fed's interest rate hike last week, clarified that the central bank will not raise rates at every meeting. In an interview on WABE radio in Atlanta he said, “The rate of rising interest rates will be more like every other meeting.”
He further explained "Moving up gradually means not at every meeting, in all likelihood," Lockhart. The more probable pace of upcoming hikes "will be more like every other meeting.” Echoing the Fed’s sentiment, Lockhart said that the subsequent rate hikes will depend on “how the economy actually performs”.
Lockhart is confident growth will improve next year. The global economy, he believes will support growth in the country as the outlook has largely improved. China is growth rate can be expected to have found some stable footing and Europe likely to do better in the coming quarters. He however refrained from being too optimistic. He said he will not “overstate the momentum of the economy.”
The Fed stated the subsequent rate hikes will be gradual and dependent on the incoming economic data. The FOMC will raise rates by 25 bps four times in 2016. Another four rate hikes can be expected in 2017. Markets however believe that the dominant economic condition would be such that the central bank will not be able to raise rates more than two times in the next fiscal.
The question that has now arisen is what does Fed’s “gradual” actually mean. Atlanta Fed President Dennis Lockhart who voted in favor of the Fed's interest rate hike last week, clarified that the central bank will not raise rates at every meeting. In an interview on WABE radio in Atlanta he said, “The rate of rising interest rates will be more like every other meeting.”
He further explained "Moving up gradually means not at every meeting, in all likelihood," Lockhart. The more probable pace of upcoming hikes "will be more like every other meeting.” Echoing the Fed’s sentiment, Lockhart said that the subsequent rate hikes will depend on “how the economy actually performs”.
Lockhart is confident growth will improve next year. The global economy, he believes will support growth in the country as the outlook has largely improved. China is growth rate can be expected to have found some stable footing and Europe likely to do better in the coming quarters. He however refrained from being too optimistic. He said he will not “overstate the momentum of the economy.”