Federal Reserve Monetary Policy May Change by Year End

The President of the Richmond, VA Federal Reserve Bank, Jeffrey Lacker has stated that it is likely the Federal Reserve Board will vote to raise interest rates by the end of the year. The Fed is also on track to end its reinvestment in mortgage-backed securities and other stimulus programs in June. Lacker is joined by the Minneapolis branch president, Narayana Kocherlakota, as well as the Fed chiefs in Philadelphia, Dallas and St. Louis, in calling for increasing interest rates sooner rather than later and ending stimulus programs on schedule in June.

The growing concern is that inflation will heat up as employment numbers rise. Interest rates will need to be “normalized” as the economy heats up.

Monetary conservatives predict that the interest rate hike will happen sooner than anyone expects. As soon as manufacturers start passing along the steep commodity price hikes the gig will be up for low rates. The central banks of the other major powers have been hiking interest rates for months, and pressure from the other world banks may end up forcing Fed Chair, Ben Bernanke, to raise rates sooner rather than later.

The next Fed Open Market Committee meeting is April 26-27 followed by a highly unusual post-meeting press conference. If interest rates are hiked expect a bearish run on the stock market.