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Rate-rise prospects fade further as Fed policymaker urges caution
The prospects of a Federal Reserve interest rate rise this month receded further yesterday after a senior policymaker set out a series of arguments for not rushing into an increase.
Amid fevered speculation about the US central bank’s policy meeting next week, which on Friday helped trigger the worst bout of market turmoil since the Brexit vote, Lael Brainard called for caution on rates. She cited doggedly below-target inflation, risks from overseas and a limited arsenal to counter future economic setbacks.
The comments by Ms Brainard, a dovish Fed governor and permanent member of the Federal Open Market Committee, will make it harder for Fed hawks to seal the case for an increase in rates as soon as September 21.
Interest rates futures indicated yesterday that investors see a 22 per cent chance of a rate hike this month, down from 28 per cent before she spoke. The Fed would run the risk of provoking a sharp market reaction if it surprised investors by moving next week.
In recent weeks, divisions have opened up between US central bank policymakers over when to move rates as some officials fret about the risks of waiting too long and allowing the economy to overheat.
Ms Brainard made clear in her speech that she thinks the risks of tightening policy too soon far outweigh those of waiting, given the economic hazards looming globally. She told the Chicago Council on Global Affairs that Fed policymakers needed to take into account a number of new factors in setting rates.
布雷纳德在演讲中表明，鉴于全球浮现的经济阴霾，她认为收紧政策过早的风险远远超过等待的风险。她告诉芝加哥全球事务委员会(Chicago Council on Global Affairs)，美联储政策制定者在设定利率时需要考虑一些新的因素。
Among them was inflation’s persistently below-target level, and the possibility that the relationship between strong hiring and inflation has weakened. “Recent developments suggest some reasons to be concerned more about undershooting than overshooting” on inflation, she said.
In addition, indicators such as the depressed rate of labour-force participation among prime-age people and low wage growth meant the Fed should be “open to the possibility of material further progress in the labour market”, suggesting its officials should not do anything to get in the way.
“In the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labour market,” Ms Brainard argued.
“To the extent that the effect on inflation of further gradual tightening in labour market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling.”
The two-year Treasury yield had nudged to as high as 0.8 per cent ahead of Ms Brainard’s speech, but fell to a low of 0.775 per cent immediately after.
Longer-maturity Treasuries were largely unmoved, and the two-year yield eventually settled at 0.78 per cent, roughly where it had started the day.
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