US Federal Reserve governor Tarullo sets slightly higher bar for interest rate hikes

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Sharecast News | 02 Jun, 2016

Updated : 14:02

One of the key rate-setters at the US central bank on Thursday appeared to set a slightly higher bar to hiking intrerest rates than some of his counterparts had done through various speaking engagements over recent weeks.

In an interview with Bloomberg TV, Federal Reserve governor Daniel Tarullo said he would not comment on what specific decisions he might adopt at any future meetings.

However, when discussing the options that were now available to policymakers he expressed a slight preference for framing the debate about whether to raise interest rates in terms of clearly identifying why it was so pressing to do so immediately.

The underlying rationale for such a stance, he explained, would be that in theoretical terms it was not completely clear how to correctly define 'full employment' - one of the Fed´s two congressionally-mandated policy goals- and the global economy was still not inflationary.

Hence, Tarullo´s preferred approach was similar to that of those (not necessarily within the Fed) arguing that the central bank needed to be data-dependent and move gradually, but framed against a more uncertain background which might justify achieving somewhat more employment and higher wages before tightening and being more critical when trying to justify a hike.

As for those observers in the market who claimed that the world economy had entered a period of so-called 'secular stagnation', which required very low rates for very long, Tarullo said such an approach might contain some important insights for policy-making, but at this juncture he did not believe it should be the basis for crafting policy.

Finally, Tarullo said he did not agree with those who held that the US monetary authority had had to normalise in order to return policy to normal levels. In his opinion, such an argument was "not convincing" as it was impossible to define what 'normalcy' meant.

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