Members of the U.S. Federal Reserve may be bracing financial markets for a possible rate hike, and the indications are it could happen soon.
The Fed’s benchmark rate, or the rate it charges banks on short-term loans, has been near record lows since the end of the financial crisis. With the U.S. economy showing signs of improvement, though, the odds of a rate hike — the first since December of last year — are rising.
With more Americans working or looking for work, and corporate profits are on the rise. Can a Central Bank rate hike be far behind?
Speaking at the Peterson Institute in Washington, the Federal Reserve’s Jerome Powell said the implications for monetary policy are clear.
"Depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon," said Powell.
Earlier in the week, Dallas Fed President Robert Kaplan said he expected at least two rate hikes in 2016. And Friday, Federal Reserve Chair Janet Yellen said the Fed is monitoring economic data, but she expressed confidence about the U.S. recovery.
"It's appropriate, and I've said this in the past, for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate," said Yellen.
The last rate hike was six months ago. Since then, slower growth around the world and increased market volatility have delayed moves to “tighten” or “normalize” US monetary policy.
Time is short
On Skype, Bankrate.com’s chief analyst, Greg McBride, said the Fed is running out of excuses, and time.
“If they don't set the table for a move in June or July, you can kiss two interest rate hikes in 2016 goodbye,” he said.
Economists say interest rates are still the strongest tool available to central banks when the economy sours. Even investors who have benefited from lower borrowing costs may be coming around, says portfolio manager Brad Friedlander.
"I think you're beginning to see a wake-up call among a set of investors that have been largely complacent about the idea of implicit dovishness [opposition to higher rates] coming from the Fed, and I think with the Fed's confidence comes market confidence as well," said Friedlander.
"You don't want to wait too long, but neither do you want to be in a hurry," said the Fed’s Powell, who denied there’s a coordinated effort by central bank officials to signal a rate increase.
Their next vote comes June 15.
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