Fed warning on interest rates has sterling reeling against the dollar

The pound plunged against the dollar yesterday after three senior members of the US Federal Reserve warned that the central bank was ready to raise interest rates faster than the markets were expecting.

The pound plunged against the dollar yesterday after three senior members of the US Federal Reserve warned that the central bank was ready to raise interest rates faster than the markets were expecting.

Federal Reserve Bank presidents Jack Guynn, William Poole and Sandra Pianalto joined the chairman, Alan Greenspan, in warning that the Fed was worried about inflationary pressures. Policy makers may need to raises their target rate "further and faster" than investors are betting if prices exceed Fed forecasts, Mr Poole said.

Mr Guynn, the Atlanta Fed president, said there had been a "flurry" of price rises across the economy. "Recent developments on the price front warrant significant attention in our analysis and policy debates," he said. The comments triggered a surge in the dollar as traders bet that the Fed would raise rates more aggressively than they had expected until this week.

Ms Pianalto, the Cleveland Fed President, said rates were too low to be sustainable. "Failure to respond in a timely fashion puts our hard-won credibility at risk," she said.

Sterling suffered its biggest fall in seven weeks, plunging two cents against the dollar to $1.8218. The dollar also rose strongly against the euro and the yen. "The Fed is trying to break the bad news gently to the markets," said Ethan Harris, the chief economist at Lehman Brothers in New York, which expects the Fed to order its first rate rise in four years on 30 June.

Since the start of this year the Fed had said it would only raise interest rates at a "measured pace", based on its forecasts for a gentle recovery On Tuesday, Mr Greenspan surprised the markets by warning that the Fed would "do what is required to fulfil our obligations" if the economy started to rebound. Yesterday, Mr Guynn and Mr Poole chose a day when the financial markets were shut for the funeral of the late US president Ronald Reagan to hammer home the message.

In an interview with Reuters Mr Poole, the president of the St Louis Fed, said: "It is going to be very important for the Federal Reserve to be prepared to respond to new information ... if we end up with inflation coming in on the high side of expectations.

"If it looks like a signal is really there, then my personal position would be that it would be appropriate for the [Fed] to move further and faster than is priced into the market today."

Addressing an audience of property brokers, Mr Guynn said: "In my personal view, the word 'measured' is more of a plan than a pledge. Not only is it important that we prevent appreciable price increases from taking hold, but it is vital that we maintain the Fed's credibility for following a policy path that keeps inflation in check over the long haul."

The Fed has held its main lending rate at a 46-year low of 1 per cent for a year.

Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreEXCLUSIVE The Shakespeare play that proved too much for more than 100 people
News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
Arts and Entertainment
booksThe best children's books for this summer
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs his surreal series returns, the comedian on why mainstream success scares him and what the future holds for 'The Boosh'
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
music‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do 'The Independent’s' experts think he’s missed out?
Sport
Colombia's James Rodriguez celebrates one of his goals during the FIFA World Cup 2014 round of 16 match between Colombia and Uruguay at the Estadio do Maracana in Rio de Janeiro, Brazil
sportColombian World Cup star completes £63m move to Spain
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
News
news
News
i100
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Antoine Griezmann has started two of France’s four games so far
sport
Life and Style
techYahoo Japan launches service to delete your files and email your relatives when you die
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Meet the man who doesn't want to go down in history as the country's last Scottish Secretary