The uncertainty surrounding the highly anticipated interest rate hike has kept the industry on its toes about just when the Federal Open Market Committee (FOMC) will raise rates, but New York Fed President William Dudley has recently reversed his initial forecast for the increase, presenting even more skepticism.
Dudley, who is also a voting member of the Fed and vice chairman of the FOMC, noted in a recent interview with CNBC that his original forecast for the hike was altered by questions about a slowing global economy and its effect on the U.S. economy, which could potentially delay the rate increase further.
"I think the key question is, are we going to get sufficient growth in the economy, put downward pressure on the unemployment rate, get an acceleration in wages? If we get that, I'll be reasonably confident in inflation returning to 2 percent."
In late September, Dudley projected that the Fed may raise rates this year "if the economy continues on the same trajectory it’s on…and everything else suggests that’s likely to continue…then there is a pretty strong case for lifting off," he said in a Wall Street Journal interview.
However, contradictory to these remarks, in his recent CNBC interview Dudley seemed to back pedal on his previous statement, noting that he still predicts a rate hike this year, "but it's a forecast and we're going to get a lot of data between now and December, so it's not a commitment."
The debate over whether it was time to raise rates as intensified as economic volatility in China has caused turbulence in the U.S. stock market in August. Following this, Dudley said that a rate increase in September seemed "less compelling" following turbulent stock market activity.
At the September meeting, the Federal Reserve decided to keep the federal funds target rate at zero to 1/4 percent, where it has been for nine years.
"In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement. "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that 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 percent objective over the medium term.
The FOMC minutes from the September meeting showed that the Fed's concern mostly lingers around global economic troubles, but they still intend to raise rates before the end of 2015.
"The concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of U.S. monetary policy," the minutes said. "Based on federal funds futures, the probability of a first increase in the target range for the federal funds rate at the September meeting fell slightly."
Even though most officials indicated that economic conditions will allow the hike to happen later this year, “the committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated.’’
Click here to read/watch the CNBC interview.
Click here to read the WSJ interview.