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MENAFN - Khaleej Times - 14/05/2014
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(MENAFN - Khaleej Times) Policy interest rates would begin to rise at some point in 2015 says lockhart

the us federal reserve is expected to end its bond-buying programme by october or december before raising interest rates in 2015 as the economy picks up steam federal reserve bank of atlanta president dennis lockhart said on sunday.

“this is a first step in the gradual normalisation of monetary policy. assuming continued recovery of the us economy and the closing of employment and inflation gaps the fed’s policy interest rates would begin to rise at some point next year” lockhart who is dubai.

speaking at the dubai international financial centre lockhart who currently holds a non-voting seat on the fed’s federal open market committee said its 10 billion step-downs in asset purchases looked set to continue. “i think tapering is going to phase out toward the end of the year” he said adding that he did not anticipate any reasons for a shift in fed’s crucial decision to taper its quantitative easing policy.

already the fed is in the midst of tapering its stimulative quantitative easing policy. on december 18 it decided to taper its bond purchases by 10 billion per month to 75 billion. after three additional reductions the programme currently stands at 45 billion per month. the fed’s new chairman janet yellen also expects the programme to wind down steadily through 2014 and conclude by year-end assuming the economy remains healthy.

lockhart said he was confident the us economy was now strengthening in line with his forecast of an annual growth rate of three per cent despite this first-quarter slump to 0.1 per cent growth. this will likely lead the fed to stop its bond buying in october or december he said.

his remarks echoed fed head yellen’s view that the economy was on track for solid growth this quarter.

lockhart said low inflation in the us europe and japan remains a concern. in the us the inflation rate is “beginning to move” in the direction of the central bank’s target of two per cent. the resource slack particularly both unemployment and underemployment would be absorbed. “conditions will develop by the middle of next year at which time we can conceivably begin a gradual process of raising interest rates.”

yellen said on may 7 that a high degree of monetary accommodation remains warranted as inflation and employment fall short of the fed’s congressionally-mandated goals. she said the fed would probably end bond-buying in the fall if the labour market continues to improve. us payrolls rose last month by 288000 in the biggest gain in two years and the 6.3 per cent jobless rate was the lowest since september 2008.

he said it may not be clear for several months or even quarters whether the us economy is firmly on a stronger and sustained growth path around a run rate of three per cent. he also said tensions between russia and the west over ukraine were of a concern as they have a potential to destabilise markets and economies.


 






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