Tags: Danielle DiMartino Booth | Federal Reserve | debt | rates

Former Fed Adviser: Chances of Rate Hike Fall as Central Bank Cuts Debt

Former Fed Adviser: Chances of Rate Hike Fall as Central Bank Cuts Debt
(Source: DiMartinoBooth.com)

By    |   Thursday, 25 May 2017 02:48 PM

Danielle DiMartino Booth, a former adviser to the Federal Reserve Bank of Dallas, said that once the central bank starts to cut its bond holdings, the chances of a rate hike also are reduced.

Fed officials have indicated they will begin to reduce the central bank’s $4.5 trillion of Treasury and mortgage debt. The debt was bought from banks for several years after the 2008 financial crisis as a way of pushing down interest rates to help the economy recover. Interest rates fall as bond prices rise.

The central bank on Wednesday published notes from its May meeting that said "most" members of the Federal Open Market Committee showed a willingness to hike interest rates again "soon." The pace of rate hikes was open for debate.

"Most participants judged that if economic information came in about in line with their expectations, it would soon be appropriate for the Committee to take another step in removing some policy accommodation," the minutes said.

DiMartino Booth, who is now the president of Money Strong, questioned whether the markets forecast a September hike. Investors also are beginning to question whether it will happen in June.

"They're going to be very measured. They'll be data-dependent. They might pull back, reduce the size," she said on CNBC. “There are a lot of caveats in these minutes. But will they double-tighten? … I don't think so."

The central bank also will keep an eye on inflation indicators to determine the direction of consumer demand, she said.

"We've seen rents start to come down in many major metropolitan areas. That will feed into the inflation metrics that they pointed out in these minutes. They're concerned that inflation is declining," said DiMartino Booth, also a Newsmax Finance Insider and Bloomberg View contributor.

Traders are pricing in a nearly 83 percent chance of a 25-basis-point increase to the federal funds rate when the FOMC meets June 13-14, according to CME Group fed funds futures.

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Danielle DiMartino Booth, a former adviser to the Federal Reserve Bank of Dallas, said that once the central bank starts to cut its bond holdings, the chances of a rate hike also are reduced.
Danielle DiMartino Booth, Federal Reserve, debt, rates
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2017-48-25
Thursday, 25 May 2017 02:48 PM
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