Federal Reserve officials have stated they may need to increase US interest rates "fairly soon" if the economy stays strong. The first meeting of the Fed officials since Donald Trump took office as president discussed the possibility of a rate increase as early as March.
Most economists have been forecasting a rise in June, but Fed officials appear divided on the timing of a rise in US rates amid uncertainty over Mr Trump's policies. Many have expressed fears that unemployment rate could fall below the Fed's 4.8% target.
That situation could trigger inflation and force the Fed to boost rates at a faster pace than expected. Unemployment in December was just 4.7%, although it was back at 4.8% in January.
Not all the people think the same
Paul Ashworth, chief US economist at Capital Economics, stated the "fairly soon"' phrase clearly leaves the door open to a March rate hike, though ... we still think the Fed will delay until June. IHS Markit declared that recent comments signalled that a March rate hike was a "strong possibility".
Ian Shepherdson, chief economist at Pantheon Macroeconomics, stated the next increase by Fed was more probable in May than March unless there was a big increase in employment in February. Lower unemployment rates push higher interest rates. Low unemployment increases inflationary pressure, thus, the Fed increases interest rates to control inflation and avoid further economic problems.
The bank's assurances that it planned to increase interest rates at a "gradual" pace could be misunderstood as a commitment of only one or two rate hikes per year. The Federal Reserve left its key interest rate unchanged at the 31 January-1 February meeting. In December the Fed boosted its interest rate by 0.25 percentage points to a new range of 0.5% to 0.75%.
