The Fed Raises Rates

What the Fed's Interest Rate Hike Means for Oil Prices

The Fed Raises Rates

Fed chair Janet Yellen said signs of cooling inflation and wage growth in the U.S. economy were no cause for concern, but market-side experts doubted that the central bank would be able to proceed with more rate cuts this year in light of the downward trend. "Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate".

"If we base our outlook for inflation on these actual data, we shouldn't have raised rates this week", Kashkari said Friday in an essay published on the Minneapolis Fed's website.

The US unemployment rate fell to a 16-year low of 4.3 percent in May, but the Fed's preferred measure of underlying inflation has been running below target for more than five years and in April slowed a second month to 1.5 percent. This is the fourth rate hike since December 2015, when the USA began to normalise its rates following years of near-zero interest. Kaplan voted for the rate rise while Kashkari dissented, as he did against the Fed's hike in March. The report marked a third straight month of surprise declines.

The British pound recovered from a three-day selloff, rising 0.5% against the dollar, after data showed United Kingdom inflation spiked in May.

In particular, Kashkari is concerned about recent slippage in inflation away from the Fed's elusive 2% target, which it has undershot for most of the economic recovery that began in the summer of 2009.

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However, Fed Chair Janet Yellen said Wednesday at a press conference that "it's important not to overreact to a few readings, and data on inflation can be noisy".

The Canadian dollar jumped 0.7% against the USA currency after upbeat comments from central bank officials fueled speculation that the Bank of Canada could raise interest rates.

"If we are making a mistake, we are making a small mistake now that I think we can recover from", Kashkari said in the interview.

The Fed followed through with raising rates and even sounded optimistic.

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