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Economist says Fed appears headed for 0.25% increase in December

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gsanews@scbiznews.com
Published Sept. 18, 2015

Clemson University economist Bruce Yandle said the Federal Reserve Open Market Committee’s explanation for keeping near zero interest rates where they are suggests there will be a 0.25% increase in December. The committee said “it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”

Yandle, Clemson alumni distinguished professor of economics emeritus, said in an email after the Fed announced its 9-1 vote Thursday that “once again the interest rate futures market seems to have gotten it right. Going into the start of the FOMC meeting, the futures market gave just a 25% chance that the Fed would raise rates. The chances of a December hike were far more likely. As expected, the Fed justified maintaining the status quo by pointing to cheap oil, a strong dollar, the resulting low level of inflation and less than tight labor markets.”

Yandle, former executive director of the U.S. Federal Trade Commission, said the “tea leaves in the bottom of the Fed's cup seemed to suggest that we will see a 25 basis point hike in rates in December. Meanwhile, Fed uncertainty will continue to keep investors guessing just when the Fed will put away the low-interest punch bowl that has been juicing the economy for six and a half years. “

A Fed statement said the panel “continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. Inflation is anticipated to remain near its recent low level in the near term but the committee expects inflation to rise gradually toward 2% percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.”

The last time the Fed raised rates was June 2006 and short-term rates have been at 0% since late 2008.

Voting for the monetary policy action were: Janet L. Yellen, chair; William C. Dudley, vice chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against was Jeffrey M. Lacker, who favored raising the target range for the federal funds rate by 25 basis points at the Thursday meeting.

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