Dudley sees Fed rate hikes; inflation weakness ‘fading’

William Dudley, President of the New York Federal Reserve Bank, answers a question, after addressing the Indian businessmen at the Bombay Stock Exchange (BSE) in Mumbai, India May 11, 2017.

By Jonathan Spicer

SYRACUSE, N.Y. (Reuters) – The Federal Reserve is on track to gradually raise interest rates given the recent inflation weakness is fading and the U.S. economy’s fundamentals are sound, an influential Fed policymaker said on Monday, reinforcing the central bank’s confident tone.

New York Fed President William Dudley, among the first U.S. central bankers to speak publicly since a decision last week to hold rates steady for now, cited the soft dollar and strong overseas growth among the reasons he expects slightly above-average U.S. economic activity and a long-sought rise in wages.

“With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the (Fed’s) 2 percent objective over the medium term,” he told students and professors at Onondaga Community College.

“In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually,” added Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on monetary policy.

Dudley’s comments were similar to his speech earlier this month, and reinforced the growing expectation that the Fed is set to raise rates for a third time this year in December. That notion was driven home by Fed forecasts published last week, when the central bank held rates but announced the beginning of a long process of shedding bonds it accumulated to boost the economy.

Still, others at the Fed are less anxious to tighten policy in the face of price readings that have sagged since February, despite strong jobs growth. Futures traders give a December rate hike about a 55-percent probability, according to Reuters data.

Dudley nodded to the three devastating hurricanes that have struck parts of the U.S. south and the Caribbean, noting their effects will likely make it more difficult to interpret economic data in coming months. He said, though, that the effects would likely be short-lived and noted that such events tend to boost economic activity as rebuilding gets underway.

In a speech focused on workforce development, he said the Fed, which is tasked with achieving maximum sustainable employment, “cannot declare success if we have people who want to work but lack the skills to fill available jobs.” Yet he noted that the Fed’s tool kit is limited and best works to provide incentives for firms to invest and grow.

“There are greater incentives for businesses to invest in labor-saving technologies” and the labor market improves, he said. “Investment spending should also benefit from a better international outlook and improvement in U.S. trade competitiveness caused by the dollar’s recent weakness.”


(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)


Energy shares lift Dow, S&P techs drag Nasdaq

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S.,

By Tanya Agrawal

(Reuters) – The S&P 500 and the Dow hit record highs on Monday, fueled by energy shares, while the Nasdaq was lower, dragged down by technology stocks, a day ahead of the Fed’s two-day meeting.

Oil prices gained as much as 6.5 percent to an 18-month high after OPEC and some of its rivals reached their first deal since 2001 to jointly reduce output to try to tackle global oversupply and boost prices.

The S&P energy index was the top performing sector with a 1.7 percent rise. Oil major Exxon was up 2.54 percent, providing the biggest boost to the Dow and S&P. Chevron rose 2.2 percent.

President-elect Donald Trump’s expected agenda of economic stimulus and reduced taxes and regulations has fueled a market rally, with the benchmark S&P 500 rising 5.6 percent since Nov. 8 to Friday’s close.

The Dow has closed at record highs 14 times since the election.

“The market has been rising on the incoming administration’s proposals, but how many of those actually pass through Congress remains to be seen,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

“Investors are expecting the Fed to hike rates but are more interested in the tone of the statement.”

Market participants are keeping a close watch on the U.S. Federal Reserve’s last meeting for the year, beginning Tuesday, with a statement from Fed Chair Janet Yellen on Wednesday.

At 10:58 a.m. ET (1558 GMT) the Dow Jones industrial average was up 32.96 points, or 0.17 percent, at 19,789.81, the S&P 500  was down 1.68 points, or 0.074352 percent, at 2,257.85 and the Nasdaq Composite was down 30.87 points, or 0.57 percent, at 5,413.63.

Six of the 11 major S&P sectors were higher.

The consumer discretionary led the decliners with a 0.82 percent fall, weighed down by a 1.24 percent drop in Amazon’s shares.

The industrials sector was down 0.58 percent, dragged down by defense stocks.

Lockheed Martin declined 3.9 percent at $249.22 after Donald Trump tweeted that the company’s F-35 program and costs were “out of control”. Other defense stocks, such as General Dynamics, Raytheon, and Northrop Grumman, were down between 2.7-4.5 percent.

Viacom fell 8.5 percent to a two-month low of $35.35 after Sumner Redstone’s privately-held National Amusements withdrew its merger proposal for CBS and Viacom, according to a source familiar with the situation. CBS was down 2.7 percent.

Ophthotech slumped 84.9 percent to a life-low of $5.85 after Novartis said a combination of its eye drug along with the company’s did not produce better outcomes.

Declining issues outnumbered advancers on the NYSE by 1,793 to 1,058. On the Nasdaq, 1,808 issues fell and 887 advanced.

The S&P 500 index showed 59 new 52-week highs and one new low, while the Nasdaq recorded 165 new highs and 16 new lows.

(Reporting by Tanya Agrawal; Editing by Sriraj Kalluvila)