Ed’s Daily Notes for August 21st   Leave a comment

Wall Street Journal: Fed Debates Early Rate Hikes

Federal Reserve officials debated at their July policy meeting whether they might need to raise interest rates sooner than expected in light of a strengthening recovery, but they were restrained by lingering doubts about whether the economy’s gains would persist.

The minutes of the meeting, released Wednesday with their regular three-week delay, show an intensifying debate inside the central bank about when to respond to a surprisingly swift descent in the unemployment rate and a pickup in consumer prices.

Some Fed officials say this long-sought economic progress warrants moving toward tighter credit soon, but they were outnumbered at the meeting by those who wanted more evidence before signaling that rate increases are on the way. The minutes don’t identify participants by name or specify the number who held certain views.

Translation: Markets will continue their “bad economic news is good, and vice versa” for awhile. However, the Fed needs to be watched for signs they aren’t seeing the economy the same way as the markets are.

The search for clues on rate-hike timing now turns to Fed Chairwoman Janet Yellen’s address Friday at a central-bank symposium in Jackson Hole, Wyo. The conference is focused on labor markets and Ms. Yellen will update her views on how they are evolving.

She has argued through her first six months on the job that an abundance of part-time workers and long-term unemployed, in addition to soft wage growth, suggest labor markets and the broader economy weren’t near overheating.

Steven Blitz, chief economist at ITG Investment Research, said he expected Ms. Yellen to revisit these points Friday, to indicate her patience about raising rates. “She doesn’t want the market getting too far in front of the Fed,” Mr. Blitz said.

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Posted August 21, 2014 by edmcgon in Economy, Federal Reserve, News

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