Real wage growth has also been subdued, possibly reflecting the low rates of productivity growth in the United States economy during recent years. Consumer spending has been rising solidly of late, likely a reflection of the boost to purchasing power from the lower oil prices as well as the ongoing job gains and a wealth-to-income ratio that remains high even after the recent declines in the stock market.
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LIMA, Peru-Talk of the Federal Reserve’s first rate increase in nearly a decade tends to send many investors into a frenzy. But minutes of that meeting released Thursday revealed concern that China’s slowdown could weaken the US economy and that inflation could remain excessively low.
Name SearchWatch Service’ Charles Evans, president of the Chicago Fed, also spoke Friday and delivered a more cautionary message: He urged the Fed to remain patient because inflation remains well below its 2 percent target. A few still foresee an increase in December, others not until next year.
He says the first rate hike in nine years could happen as early as October or December, but that taking the decision to raise borrowing costs is not an easy one.
In support of our dual objectives of maximum employment and price stability, the Federal Reserve has maintained a highly accommodative monetary policy stance since the financial crisis; this policy has fostered the marked improvement in labor market conditions that we have seen and has helped check undesirable disinflationary pressures.
If the economy does well and the government is seen in control of the internal and external events, volatility will reduce to a great extent, but volatility will still be there in a “connected” market.
“Gold was choppy following the US FOMC minutes that did not give a clear indication of whether or not the Fed is poised to raise interest rates this year”, said analysts at ScotiaMocatta, referring to the Federal Open Market Committee. If rates were to rise, the Fed fears that a drop in USA exports due to the aforementioned factors will slow the economy and dampen inflation. Only by carefully assessing where the schematics of the global economy will lead over time, can the Fed truly make an informed decision. But he cautioned, “That view is not immutable and will respond to economic developments over time”.
The metal traditionally moves in the opposite direction to the dollar and US Treasuries, both of which are driven by interest rates, but the mood has shifted a little and this week’s gains have come in spite of little or no pick up in physical demand, especially in India where festival season so far has been muted.
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A Fed rate hike would reverberate through financial markets globally, depressing foreign currencies and possibly sucking more capital out of emerging markets in particular.
