BBVA Compass economists: Fed rate decision based on upbeat view of economy, market readiness

- Global uncertainty, low inflation not enough to delay liftoff decision

- Chair Janet Yellen says Fed will take gradual approach to future hikes

Dec 17, 2015, 11:48 ET from BBVA Compass

HOUSTON, Dec. 17, 2015 /PRNewswire/ -- The U.S. Federal Reserve's decision to raise interest rates was based on an assessment by Fed policymakers that the U.S. economy was headed in the right direction and ripe to handle the long road to monetary normalization, BBVA Compass economists say in their latest report.  

"Federal Open Market Committee members unanimously agreed that this was an appropriate time to raise the federal funds rate," writes BBVA Compass Senior Economist Kim Chase. "The Fed has overcome a huge obstacle with this first rate hike, but now they need to deal with the reaction and hope that the economy continues to move along in line with their outlook."

The report notes that positive economic indicators — among them an improved labor market, with a 5 percent unemployment rate and pickup in wage growth — overrode concerns about global volatility and low inflation, leading all Federal Open Market Committee members to vote in favor of a liftoff.

U.S. Federal Reserve Chair Janet Yellen was quick to emphasize any future hikes would be gradual as policymakers allow short-term volatility to settle and are able to assess the actual impact of the first rate hike. To have a better idea of what exactly FOMC members will be looking out for, a review of the minutes from Wednesday's meeting will be necessary, Chase writes. The minutes are expected to be released in early January, 2016.

"As long as their outlook remains intact, the Fed can continue along with their data-dependent strategy and take additional, albeit gradual steps toward future interest rate hikes, with only two more rate increases to close out 2016 at 1.0%," said Chase.

To read the full report, click here.

Led by BBVA Compass Chief Economist Nathaniel Karp, the bank's research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.  Any statement or opinion of a BBVA Compass economist is that economist's own statement or opinion and does not represent a statement or prediction by BBVA Compass, its parent companies or management.

Follow their work on Twitter @BBVAResearchUSA and @BBVACompassNews

About BBVA Group
BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes. More information about the BBVA Group can be found at www.bbva.com.

About BBVA Compass BBVA Compass is a Sunbelt-based financial institution that operates 672 branches, including 341 in Texas, 89 in Alabama, 77 in Arizona, 62 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico, and commercial and private client offices throughout the U.S. BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (5th). BBVA Compass has been recognized as one of the leading small business lenders by the Small Business Administration, and its mobile app recently earned the Mobile Banking Leader in Functionality Award for the second consecutive year from Javelin Strategy & Research. Additional information about BBVA Compass can be found at www.bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com

Editor's Note: BBVA Compass is a trade name of Compass Bank.

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