Fed may hike interest rates in June after all

Regional bank presidents’ comments contradict prevailing wisdom

TRD New York /
May.May 18, 2016 04:15 PM

The Federal Reserve may be more likely to raise the benchmark fed-funds rate in its June meeting than investors have supposed, despite some mixed economic signals.

Three Fed officials known for their mainstream views pushed back this week against the conventional wisdom – embodied in fed-funds futures contracts – that the central bank is unlikely to hikes rates at its next meeting, scheduled for mid-June.

“I think that the data to my mind are lining up to make a good case for rate increases in the next few meetings,” San Francisco Fed President John Williams told the Wall Street Journal. “Not just June, which means it’s very live in terms of that.”

Atlanta Fed President Dennis Lockhart and Dallas Fed President Robert Kaplan expressed similar sentiments. “I think markets may be more pessimistic than certainly I am at this stage,” Mr. Lockhart said.

“I think markets may be more pessimistic than certainly I am at this stage,” Lockhart told the paper.

The markets appeared to be listening. Fed-funds futures contracts, used by investors to bet on or hedge against Fed moves, showed that investors Tuesday rated the possibility of an increase at about 15 percent, up from just 4 percent on Monday. [WSJ]Ariel Stulberg

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