U.S. Federal Reserve officials are growing more comfortable with the idea of beginning to tighten policy next month, as the U.S. labor market’s improvement makes it harder for even dovish officials to justify historically low interest rates.
Data on Friday pointing to a firming economy and job market, as well as comments from Fed officials, suggest weak U.S. inflation and outside risks like China’s recent stock market crash are unlikely to dissuade the central bank from raising rates at a mid-September meeting.
As financial markets prepare for rates to rise from near zero, where they have been since the depths of the financial crisis in late 2008, current and former Fed officials who spoke to Reuters worry that delay could damage the bank’s reputation, especially if the world’s largest economy picks up steam.
While Fed Chair Janet Yellen has said that rate rises would be “gradual,” she has laid the ground for a hike this year.
“She is willing to move,” said David Stockton, the central bank’s former research director and a fellow at the Peterson Institute for International Economics.
“I think they probably will move in September and I think she is probably going to be on board with that.”
The economy’s sharp winter slide, alongside a strengthening dollar and falling oil prices, pushed the Fed to back off its long-telegraphed plan to raise rates by mid-2015.
A second-quarter rebound to a 2.3 percent economic growth rate emboldened those who viewed earlier weakness as temporary and not a symptom of deeper fragility in the recovery.
Government data on Friday suggested the economy started the third quarter on yet firmer footing, with growth accelerating in an index of total hours worked across America.
The share of workers who are unable to get full-time work, a key measure for Yellen, fell to its lowest level since September 2008. Unemployment held steady at 5.3 percent, almost half of its recessionary high.
Monthly job gains have averaged 211,000 so far this year and Friday’s data showed another month of gains across wide swaths of the economy, with only energy a laggard.
Record levels of job openings and a fall in the number of long-term unemployed have also satisfied many of the measures that Yellen has stressed since taking office last year, according to current and former policymakers.
Economists are increasingly setting a low bar of 200,000 as the monthly level of jobs growth needed to keep the Fed on track to tighten next month. The August jobs report comes Sept. 4.(SD-Agencies)
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