Federal Reserve to hike interest rates, barring a 'surprise,' official says

U.S. interest rates will go up next month, unless there is a major shock to the economy, a key Federal Reserve official said Wednesday.

Fed expected to bump key rate for first time in a year

Federal Reserve official James Bullard, seen here in May 2016, said Wednesday it would take a major shock to prevent the U.S. central bank from boosting interest rates in December. (Edgar Su/Reuters)

U.S. interest rates will go up next month, unless there is a major shock to the economy, a key Federal Reserve official said Wednesday.

Speaking to reporters in London at a banking conference, James Bullard, who is a member of the Fed's rate-setting open market committee, said those shocks could include world stock volatility or a weak U.S. jobs report, things in the past that have prompted the Fed to defer rate hikes.

"You would have to have a surprise at this point," for the Fed to hold off, Bullard said, according to Reuters.

The Fed's next interest rate decision meeting is set for Dec. 13 to 14. At the end of that two-day meeting, the central bank will announce its decision on where to set its benchmark interest rate.

The U.S. central bank's key policy rate in the range of 0.25 per cent to 0.5 per cent — where it has been since December 2015 — but markets are expecting a hike. According to Bloomberg Financial, the current implied probability of a rate boost next month is 94 per cent. 

In late September, Fed chair Janet Yellen  said she believed the U.S. economy was ready for a rate hike by the end of the year.

Figures out of the U.S. on Tuesday that showed retail sales grew by a better-than-expected 0.8 per cent in October, were "yet another sign that [the Fed] can afford to move policy rates higher when they meet in December," said James Marple, senior economist at TD, in a commentary.

In the wake of the election of Donald Trump as the next U.S. president, markets are also starting to factor in the possibility that the Fed won't stop with just one hike. Trump's promise to grow the U.S. economy through infrastructure spending has markets thinking that could spark inflation and lead the Fed to tighten monetary policy even further.

But a rate hike by the Fed doesn't necessarily mean the same thing will happen here, a Bank of Canada official said.

Speaking in Waterloo, Ont., deputy governor Timothy Lane said the actions of the Fed are factored into Bank of Canada decisions.

"We are free to adjust our policy interest rate in the context of Canadian economic conditions — and, in particular, do not need to move in step with the Federal Reserve," Lane said in prepared remarks for a speech to at the Centre for International Governance Innovation.


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