Published: Fri, October 19, 2018
Worldwide | By Gretchen Simon

There's a New Bullard Rule That Finds No Need to Raise Rates

There's a New Bullard Rule That Finds No Need to Raise Rates

With a low unemployment rate and strong economic growth, the Fed can make a strong case for raising rates.

United States homebuilding dropped more than expected in September as construction activity in the South fell by the most in almost three years, likely held down by Hurricane Florence.

The rand retreated early on Thursday after minutes from the US Federal Reserve's September meeting struck a hawkish tone, draining some of the enthusiasm for emerging currencies that lifted the local unit to a two-week peak.

The Fed has been raising rates since 2015 and after the rate hike last month it stopped describing the stance of monetary policy as "accommodative", meaning it no longer thought the level of interest rates was stimulating the economy. More importantly, it will give the Fed some cushion to cut the interest rate in the future if the economy dips into a recession. His development of a rule is an effort to provide some academic justification to his viewpoint.

"Overall, nothing here to change our view that the Fed will persist with its 'gradual approach of hiking by 25 [basis points] each quarter", Paul Ashworth, chief US economist with Capital Economics, said in a note.

The Taylor Rule was developed by Stanford University professor John Taylor, who has preferred his original rule as a guideline for policy, which suggests further rate hikes are necessary. As other regions such as the Eurozone get closer to rate increases, the relative opportunities may shift in Europe's favor.

President Trump has been critical of the increases, saying they may slow business growth. The next rate rise could come as soon as December.

Brexit: Extension headache for Theresa May after European Union summit
It would however mean that businesses and citizens would have more time to prepare for the complete departure from the EU . The EU hopes an extended transition will be enough to help May accept its plan for the Irish border, an official said.

If the U.S.is not satisfied with the trade concessions offered by the targeted country, it can impose punitive tariffs, although the offending country can appeal to the Geneva-based World Trade Organization. There was some worry when rates were at record lows that the Fed couldn't lower them any more to try to stimulate the economy.

In Tuesday's interview, though, Trump said of his other nominees for the Fed, "I put a couple of other people there I'm not so happy with too but for the most part I'm very happy with people".

But that mix could change-and if it changes sharply, it could move the markets on interest rates, Wessel said.

US authorities are concerned when any nation devalues its currency because it gives that nation's exporters a competitive price advantage over their USA rivals.

After the Fed raised its key policy rate at last month's meeting for the third time this year, the action was immediately assailed by President Donald Trump as a risk to the economy's continued strength under his watch.

Fischer said that ultimately, the Fed will likely do what it thinks is best for the economy without regard to political appearances.

Although Trump wasn't mentioned directly during the meeting, the committee still discussed the policies of the incumbent emphasizing the risk they pose to the economic growth.

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