The first increase of interest rates in the United States since 2006 will be a historic moment, which in the words of Yellen must be a symbol of the US recovery after the global financial crisis and the subsequent recession. Fed wants to start soon to remove the emergency measures imposed after 2008. The gradual interest rate rise – probably by a quarter percentage – will allow you to carefully measure the effect on the economy, markets, and especially on the dollar.
Analysts are nearly unanimous that the range of interest rates on federal funding will be increased from 0-0.25% to 0.25% -0.5%. This will be implemented through both raise rates on excess reserves of banks and through other instruments such schemes Fed overnight repos.
The markets’ attention will be focused mainly on the improvement of this performance which will be specified as a condition for the next promotion. Some members of the leadership of the Federal Reserve want the bank to raise the bar by saying he would wait actual evidence of increase in prices and wages. According to the director of the Boston Fed’s Eric Rosengriyn after the first increase bank must waive the current requirement, which is to have “reasonable certainty” that inflation is moving in the desired direction.
These criticisms are gaining mind the number of cases in which the Fed has overestimated inflation and amid new collapse in fuel prices. Some directors Fed also question the action of so-called. Phillips curve, according to which the strengthening of the labor market leads to increased wages and inflation.
Most observers expect the central message of the central bank, the so-called. equilibrium real interest rate – the level of interest rates relative to the level of full employment and stable inflation will remain low and growing slowly. This will serve as an assurance that official interest rates will rise gradually. The Fed does not want to exceed the neutral level of interest rates, which would lead to premature restriction of economic activity, notes FT.