“The markets have drawn comfort” from the Fed, said Mr Lewis after officials at the central bank said they believed economic developments would “warrant only gradual increases in the federal funds rate”. However, Mr Lewis said further rises presented “a major uncertainty” hanging over both the Fed and markets. “All territory is now uncharted”, he argued, as the US central bank attempts to raise rates from historically low levels, while the banking system is flush with cash.
He added: “The Fed and other major central banks have maintained emergency policy-settings for so long that the global economy cannot be presumed to react in standard fashion to a rise in interest rates, however small that might be.” The central bank, led by chairman Janet Yellen, plans to keep increasing rates by quarter-point increments after raising rates by a quarter of a percentage point from their 0pc to 0.25pc range last month. Stephen Lewis, chief economist at ADM ISI, said that Fed policymakers would regard “the mildness of the response to their action as a tribute to their success”. While the main US index, the S&P 500, closed lower in 2015 as a whole – its first annual loss since the financial crisis – economists have not attributed this to the Fed’s move. Annual wage growth is expected to have picked up from 2.3pc to 2.8pc in December, generating inflationary pressures. Central bank watchers will also pay close attention to the minutes of the Fed’s December meeting, being released on Wednesday. These will show how confident policymakers are in returning inflation to target. The Fed has a mandate to promote full employment and to steer inflation towards 2pc. The inflation measure tracked by US policymakers stood at just 0.4pc in the year to November. Analysts at Barclays said that they expected to see “disparate views on the current state of inflation” and they would “be attentive” to how this impacts on “different views on the most likely path of monetary policy in 2016”.
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