April's non-farm payrolls report, due on Friday, will indicate the performance of the US economy in the second quarter. Speaking for the first time since policymakers met this week, two top Fed President that the central bank is ready to raise interest rates as long as economic data picks up.
The Great Recession was the only time when extensive measures were taken to change interest rates to revive the troubled economy, however officials are now currently contemplating when to begin raising short-term interest rates from near-zero.
Prior to the Great Recession, the Fed used to apply quantitative easing measures by altering the interest rates in the federal funds. However, after the recession, the central bank began cutting interest rates until they reached almost zero percent in December 2008. Today, the rate still remains at almost zero percent.
Although many traders foresee a hike in December, both Loretta Mester - president of the Cleveland Fed - and John Williams - president of the San Francisco Fed - said that the central bank is looking out for two more months of key data before hiking rates for the first time since 2006.
Mester told reporters in Philadelphia that all scheduled Fed policy meetings are "on the table," as long as there is an improvement in the data, interest rates may be raised at any meeting.
"There are a whole bunch of data releases that will come out between now and June. But to me the employment reports will be indicative of a lot," she said.
Recently, unemployment was at 5.5 percent which is not far from what many economists believe represents full employment.
However, a weak jobs report may strengthen the expectations of no tightening until the end of the year.
Both Mester and Williams pointed to recent data showing inflation may be falling, suggesting they are gaining confidence it heads toward the Fed's 2 percent target.
Despite improvements in recent months, inflation has been dragging due to the decline in oil prices and stronger dollar.
Data for April 4 shows US oil prices at $59 per barrel, which is the biggest monthly gain in six years in April.
According to a statement by Williams, if the dollar and oil prices stays more or less flat, then they are neutral toward inflation.
“We’re getting close to the point where it’s going to be time to lift off, and now it’s going to be this decision based on the data,” said Mester.
However, a sudden decision made by the U.S. Central Bank could negatively impact markets, especially emerging market currencies.
The IMF has stated that raising short-term interest rates sooner than market anticipation could result in a hasty jump in long-term interest rates and a whirlwind of volatility.
The weak performance of the US economy including the low gross domestic product results have pushed back market expectations for a policy tightening.
Analysts believe the sharp slowdown in the economy could be a false representation of the economy’s real stance since temporary factors such as the weather play a big role in the data.