Fed's Quarles says gradual United States rate hikes 'appropriate'

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US stock index were higher on Friday as bond yields retreated for the second straight day, with investors also focusing on speeches by Federal Reserve officials for their views on interest rates. That marked a fourth straight losing session (http://www.marketwatch.com/story/the-nasdaq-just-logged-its-longest-losing-skid-in-more-than-a-year-2018-02-22) for the tech-heavy index, its longest losing skid since a nine-session slide ended November 4, 2016, according to WSJ Market Data Group. According to the minutes, the Fed officials see increased economic growth and an uptick in inflation as justification to continue to raise interest rates gradually.

As John Dizard recently noted in the Financial Times: "A lot of older people and opioid addicts must rejoin the labour force and work efficiently to keep the economy ticking over without an inflationary blowout or a bond market crash".

The Cleveland Fed chief has a vote on monetary policy this year under a rotating system.

Sal Guatieri, senior economist at BMO Capital Markets, said Friday's monetary report was "in line with further gradual rate hikes" although he said various sections could be read to support either an expected three hikes or possibly four hikes this year.

After the news came out, the United States 10-year Treasury yield spiked to as high as 2.956 per cent.


Stocks ended lower on Wednesday after the release of the minutes pushed yields on the benchmark 10-year U.S. Treasury note to a four-year high of 2.957 percent.

That said, the Fed might react to market swings, should they continue, by implementing rate hikes as well. The Fed had pushed the rate to a record low near zero in December 2008 as it struggled to contain a severe financial crisis and the deepest economic downturn since the Great Recession of the 1930s.

January's meeting, Janet Yellen's last as chair, took place before monthly employment and inflation data showed a rise in price pressures. The catalyst for the sell-off into the close was a surge in interest rates to fresh multiyear highs in a delayed reaction to the Fed minutes. In an interview with Bloomberg (http://www.marketwatch.com/story/mnuchin-says-us-wages-can-rise-without-boosting-inflation-2018-02-23), Mnuchin brushed aside concerns over rising wages, saying these didn't necessarily have to trigger a rise in overall inflation. It was a dramatic turnabout, as stocks initially moved higher following the release of the minutes, as investors (and algorithmic trading systems) focused on the few hints of dovishness sprinkled in the document. It wasn't just stock investors, either.

Minutes of the January meeting showed on Wednesday the US central bank's rate-setting committee grew more confident in the need to keep raising rates, with most believing inflation would perk up.

Investors have all but priced in another rate increase at the central bank's next meeting on March 20-21.

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