It’s premature to rule out Fed rate increase, Fed’s Dudley says

Arif Gunawan Sulistiyono

Federal Reserve Bank of New York President William Dudley has warned that traders who have been ruling out an interest-rate increase later this year are growing too be over-confident, despite the fact that Fed officials left its short-term rates unchanged.

In his remarks for a Bali seminar, held by Bank Indonesia and The Fed, Dudley said all central bankers must be a bit more careful about the risk of tightening monetary policy in a manner that proves to be premature, as compared to the alternative risk of being a little late.

“To my eye, market expectations derived from futures prices, which price in about one 25 basis point rate hike through the end of 2017, appear to be too complacent […] I think it is premature to rule out further monetary policy tightening this year,” he said in his remark in the Executives’ Meeting of Asia Pacific Central Banks (EMEAP) on Monday.

In recent months, the Fed has signaled potential interest rate increases are possible this year, possibly as early as September. However, not all traders have been convinced the central bank will act.

Samuel Sekuritas economist Rangga Cipta commented that the markets refuted to buy Fed’s uncertain plan of its benchmark interest rate, and have choose to be more cautious on the China’s economic data.

“I, personally, prefer to anticipate China’s updates rather than that in the US interest rate, regarding the fact that Indonesia and Asean region are heavily related to China. A slowdown in the economy will give us a double impact both in trade and market sentiment,” he said. (ags)