“The focus was clearly on the perceived change of tone in the Fed“, Bill O’Neill, co-founder of commodities investment firm LOGIC Advisors in New Jersey, said.
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A number of officials argued that a rate increase could convey confidence to the world about the economic outlook and that the Fed needed to move in acknowledgment of the progress the economy had already made toward normalcy.
Analysts had been betting on a rate hike when Fed officials next meet on September 16-17 given sustained strength in the world’s largest economy. The central bank is eyeing employment and inflation as it considers its first tightening of monetary policy since the crisis.
Fed officials signaled concern over low inflation and want to see the labor market improve further, according to minutes released Wednesday of the central bank’s July meeting. The committee members aren’t unanimous about a rate hike yet, and concerns are popping up left and right. At 0900 BST, the benchmark Stoxx Europe 600 index was down 0.3%, France’s CAC 40 was 0.2% weaker and Germany’s DAX was off 0.6%.
While many investors have been anxious about the debt crisis in Greece and China’s downturn, Yardeni doesn’t seem too concerned about those issues.
CHINA FEAR: Overseas, China’s stock market roiled Asian and European stocks, on fears that the country’s currency, the yuan, will continue to erode. They also noted that Latin American economies – major U.S. trade partners – have also slowed down this summer. When the dollar rises, U.S. exports become less competitive in overseas markets and foreign goods can consume greater market share in the United States.
“We don’t come away from the minutes feeling more confident about our call for a September rate hike as we might have hoped”, said Michelle Girard, an economist at RBS.
Still, “most” Fed policymakers continued to expect the effects of the strong dollar and low oil prices to “abate”, nudging inflation toward the Fed’s goal. “The low inflation profile will certainly keep the Fed communicating a gradual glide path”.
U.S. gold for December delivery (GCcv1) settled up 2.2 percent at $1,153.20 an ounce.
“It was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation”, the minutes said.
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The dollar extended losses after the minutes were released, dropping as much as 0.7%.
