Fed Update: Is the Federal Funds Rate Hike Near?

Posted by Laine Smith on 8/14/15 12:12 PM

Topics: Economy

U.S. employment data from July has bolstered many economists' expectations for the forthcoming short-term federal funds rate hike.

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Image courtesy of zirconicusso at FreeDigitalPhotos.net

Last Friday's Employment Situation report showed gains in employment standings and rebounding wages, both of which are in line with the Federal Reserve's narrative of an improving economy.

Previously in June, the Fed said they anticipated it would be appropriate to raise the target range for the federal funds rate when further improvement had been made in the labor market and their was increased confidence that inflation would move back to its 2 percent objective.

"The interesting situation in which we are is that employment has been rising pretty fast relative to previous performance and yet inflation is very low," said Federal Reserve Vice Chairman Stanley Fischer in a Monday morning interview.

While many economists have speculated Fischer was trying to talk down the commentary that a September rate hike was a done deal, Fischer stated the hike will not proceed until the Fed is convinced inflation and employment have returned to "more normal levels".

The most recent reading of the Fed's inflation target showed just 0.3% growth over 12 months.  The PCE price index, the Fed's inflation indicator, has not been above 2% since April 2012.

Fischer said if the Fed was focused solely on inflation, they would have to be more accommodative with the federal funds rate, if possible.

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