New York Fed governor - William Dudley - said that the market should not eliminate the possibility that US Federal Reserve System (Fed) will raise interest rates this year.
In a press conference on 1sth August in Bali between Fed officials and financial managers, Mr. Dudley said that the market is too complacent as forecasting the Fed will raise interest rates by 25 basis points from today until the end of 2017.
Thanks to improved consumption, Mr. Dudley expects the US economy will grow at a rate of 2% in the next 18 months.
If the coming information reinforces economic outlook, US monetary policy will need faster moves than the price in the future to neutralize the market because the labor market tends to tighten and the inflation increases.
In addition, Mr. Dudley also noted that the market has underestimated the ability that no.1 economy grows faster than forecast.
The risks affecting growth such as the UK to leave the European Union (EU) and other international moves will soon ease. If the events, which have a negative impact, happen, Mr. Dudley said the US economy will require a faster growth rate than people expect.
Mr. Dudley supposed that this time is too early to exclude the possibility of tightening monetary policy further in 2016. It depends on the data, and no one can predict precisely.
In last week's policy meeting, the Federal Open Market Committee (FOMC) - who are directly responsible for the monetary policy of the Fed - have decided to keep interest rates unchanged at 0.25 to 0, 5% although they admitted the job market has been strengthened and other indicators also showed growth.
The last time, when Fed raised interest rates in December last year, is also the first time as they raised interest rates from nearly 0% for almost a decade.
On the other hand, in their statement, FOMC said inflation has not shown signs of growth yet and as the forecast, this situation will last. Chairman Janet Yellen and her colleagues noted that inflation will only increase as the energy prices retreat and the job market continues to grow.
Mr. Dudley said that the medium-term risks to the US economy tend to decrease in near future.
For that reason, he suggested that the market may believe that the Fed will likely stick plans to raise interest rates two times as their plan launched earlier.
According to the governor, Fed is adopting a risk management approach and they were prudent with the risks of tightening fiscal policy. Although the market supposes that Fed is cautious too early, but they decided to choose this method to not have to deal with the later discovered risks.
However, the Fed was slow to react to inflation risks. Inflation policies may be adjusted by increasing short-term interest rates quickly.
Japanese companies have cut their forecasts for inflation in the country in the next 5 years, clouded the prospect of this country for achieving the inflation target of 2% in the coming fiscal year as the Governor of Bank of Japan (BoJ ) Haruhiko Kuroda set.
Bloomberg has quoted a survey report released on 4th of July due BoJ said Japanese companies forecast inflation rate of 1.1% during the next 5 years, the lowest level since the first survey was performed in 2014.
During this survey, Japanese companies also forecast prices will rise 1.1% in next 3 years, and an increase of 0.7% within 1 year.
This forecast of Japanese companies showed opposition to BOJ's forecast that Japan will achieve the inflation target of 2% in March, 2018.
Currently, inflation in Japan has reduced the level at a time when Mr. Kuroda started the huge stimulus programs in 2013. The recent economic data showed hardly any signs of prosperity before the next meeting of BoJ in 28-29th of July.
Increasing 2% inflation as target in strategy to revive growth named Abenomics of Prime Minister Shinzo Abe. Low inflation posed risk for Japanese economy to fall back into a spiral of deflation and continued sluggish growth.
"There is no sign of inflation," said Junichi Makino, chief economist of SMBC Nikko Securities, said "Mr. Kuroda will continue under pressure to loosen policy further."
Yen rose from the beginning of the year makes inflation target 2% of Japan distant. Not only having the ability to erode the profits of Japanese exporters, the currency discount also pressured deflation through imported price discount.
In the context of low inflation and sluggish profits, wage growth is likely to stay low.
Yen's rise has been pushed higher since British voters voted to leave European Union (EU). Brexit made the global financial markets panic, push demand for safe assets increasing, in which gold is the most preferred investment, US Treasuries and Japanese Yen.
According to the latest figures, consumer prices in Japan fell 0.4% in May, the lowest inflation rate since January 4th 2013 as Governor Kuroda announced program to stimulate growth with huge scale.
Many major banks such as Barclays and JPMorgan Chase forecasted that Bank of Japan will have to increase the size of the stimulus program in a meeting held in end of July.