Doubts 4 Fed rate hikes in 2016

 Former US Treasury secretary Larry Summers, said Wednesday he doubted the Federal Reserve would raise interest rates four times this year as the central bank has signaled.

"I'd be surprised if the world economy can comfortably withstand four hikes. And I think that basically markets agree with me," Summers said in an interview with Bloomberg television.

Fed officials on average expect the benchmark federal funds rate to reach 1.4 percent by the end of 2016, after the first increase in more than nine years in mid-December moved the rate from near-zero to 0.25-0.50 percent.

That outlook implies four quarter-point increases this year. But bond market prices suggest investors expect only two increases, and the recent China-driven economic turmoil has pushed some investors to expect just one hike.

Summers, once considered a possible successor to Fed chair Ben Bernanke, a job snared by Janet Yellen, said there was a "significant risk" that Americans are "going to find ourselves in a situation within the next two years where policy is going to have to reverse."

He saw spillovers from China's slowdown as it seeks to transform into a more consumer-driven and services-based economy.

A more services-oriented China will result in less demand for copper, iron ore and other commodities that other countries depend on for export earnings, he said.

"So even from a successful Chinese transformation we have risks," he said.

Summers noted estimates for the US economy point to growth below one percent in the fourth quarter, down from a two percent annual pace in the third quarter.

There were continuing gains in the US labor market, with a "very robust" December, he said. "But even that robustness wasn't enough to produce meaningful wage increases."
Source :AFP