FED WARNED OF HISTORIC MISTAKE IF RATE HIKE IS DELAYED

A research head from Deutsche Bank has warned the Federal Reserve that it will be making a historic mistake by staying any longer on zero interest rate policy.

Bloomberg quoted David Folkerts-Landau, who is global head of research at Deutsche Bank, in a report saying that remaining at the zero level of monetary policy for any time longer would be a “historic mistake” for the Fed.

He said, quoted by Bloomberg, – “To stay here (at zero), I believe, would be a mistake of historical proportions. They should have done it [raised interest rates] already. You may think that is an arrogant statement, but remember central banks make mistakes. If you go back to 1925 just when we’re back on the gold standard, a huge mistake.”

Although several Fed officials have been vocal in their support for a rate hike before the year-end, traders and investors remain doubtful about the Fed’s actions. Bloomberg says, its data points that less than 40% of surveyed market experts believe the central bank will increase its interest rates before 2015 reaches its end.

In stark contrast to such dire warning, St. Louis Fed President James Bullard stated on Tuesday that it will be difficult for the Fed to change its stance on rate policy just one month after it declined to hike its lending rates.

Bullard has been a supporter of rate increase and had opposed the Fed’ decision to delay a rate hike in its last meeting in September. He expressed his views that it will be difficult to convince other Fed members that just in a month, economic data has so improved that its warrants a rate hike.

James Bullard’s remarks show a division of opinion at the U.S. central bank about how to tackle a delicate issue of its first rate hike in almost a decade. Just a day before, a Fed governor, Lael Brainard had warned of global slowdown and suggested that the Fed should adapt a wait and watch policy before taking any rate hike decision.