UK Edition
Federal Reserve alerts US to chance of imminent interest rate rise
The Federal Reserve is preparing to raise US interest rates yet again, despite the financial turmoil that gripped global markets after the central bank increased its rates last December.
Members of the Federal Open Market Committee (FOMC), which decides on US monetary policy, were split on raising rates as early as this month, minutes of the committee’s last meeting have revealed.
Some Fed economists said that an increase “might well be warranted” if economic growth remained as expected, with further gain in employment and signs of inflation rising to 2pc over the medium term.
While economic and financial conditions appeared to deteriorate at the beginning of the year, the outlook is now somewhat brighter. The improvement has led many central bank watchers to believe that the US may face further rate rises as the year progresses, and the economy can stomach them.
Investors expect that the central bank will lift their interest rates by the end of 2016, from their current 0.25pc to 0.5pc range. December’s rate rise was the first attempted by the US central bank in nearly a decade.
The minutes of the March meeting suggest that the FOMC could be ready to move on policy again much sooner than anticipated, after increasing rates by a quarter of a percentage point at the end of last year.
However, “several expressed the view that a cautious approach to raising rates would be prudent”. Other FOMC members “noted their concern that raising the target range [for interest rates] as soon as April would signal a sense of urgency that they did not think appropriate”.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "The clear message from the March FOMC minutes is that the Fed is split on two major issues. Namely, the extent to which the recent increase in core inflation will be sustained, and the extent to which US economic activity will be constrained by weak global growth.
"These key issues will not resolve quickly, so we think the chance of an April rate hike is very low. With financial conditions easing markedly over the past couple of months, we think the Fed will hike in June."