US Economy Strong, Interest Rates Will Rise
Thursday, New York Federal Reserve President William Dudley said that as long as the US economy continues to grow above trend this year, he would be in favor of another interest rate rise at the US central bank’s upcoming meeting in March.
“As long as I am comfortable the economy continues to grow at an above-trend pace at a time that I think monetary policy is accommodative and financial conditions are easy, I’m probably going to be supportive of removing monetary policy accommodation,” Mr. Dudley said in a TV interview when asked what it would take for him to vote for another rate hike in March.
Mr. Dudley also wasn’t daunted by the recent stock volatility.
The 10-year US Treasury yield rose to a high of 2.884% in morning trade, nearing Monday’s 4-year high of 2.885% after the BoE said interest rates probably need to rise sooner than previously expected.
That added to expectations that the world’s major central banks are now firmly on course to wind down the emergency stimulus they have pumped through the financial system since Y 2009, pausing the 9 year continuous Bull Market Rally.
“Clearly the market is adjusting to the fact that the global economy is growing quite quickly and as a consequence of that, monetary authorities around the world are either starting to remove accommodation or thinking about starting to remove accommodation, and that’s a little different than the environment we were in the prior 7 or 8 years,” Mr. Dudley said.
The market’s main gauge of volatility, the CBOE Volatility Index (VIX), fell to 29.82 Thursday, down off a 2.5 year high above 50 points hit Tuesday.
Market participants are weighing whether the sharp swings this week are the start of a deeper correction or just a consolidation in the 9-year Bull Run, spurred by concerns over rising interest rates and bond yields.