With the approach of the June Fed meeting, the market has raised the possibility of policy rate hike in June. There were little market reactions to the speculation, and were even so when the Fed chairwoman, Janet Yellen, stated that rate hikes “is appreciate in the coming months”. The market seems more adapted and prepared this time, after dramatic reactions to the QE tapering a few years ago and the first rate hike in December last year.
It is not important to have another rate hike whether in June or July or even a bit more late. A few months would not make difference since monetary policy has long time constant (12 – 18 months). I believe the Fed will keep promise that the rate normalization process will be slow and data dependent, and will also take international development into consideration.
With rate at zone bound, monetary policy suffers lack of maneuverability, i.e.,conventional monetary policy has no more room to be stimulating. A proper control system should be designed such that the control demand has room to go up and down.
Another difficulty is that because of globalization, monetary policies at national level can have impact on other countries. The Fed has to maintain bulk control as well as tilt control as there are economic and monetary mismatches between nations. Japan, euro zone, and China are easing monetary policies, economically slowing. Excessive rate policies in the U.S. will destroy the balance in foreign exchanges and cross.