Lockhart’s views on the timing for a rate hike have been closely followed because he is one of five regional bank presidents with a vote this year on the Federal Open Market Committee, the panel of Fed bank presidents and Washington board members that meets eight times a year to set interest rate policy for the central bank.
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The assumption that the Federal Reserve will raise interest rates by year-end is “still operative”, according to Atlanta Federal Reserve President Dennis Lockhart, but he added that weaker USA economic data over the past few weeks has made the situation “a bit more ambiguous”. Markets now think the Fed won’t hike at its meetings in October or December, particularly after weak monthly USA employment numbers. The latest spark came from last week’s jobs report which in the eyes of many, appears to have been the final nail in the coffin for a rate hike this year, although that is debatable. The trouble, he said, is that this strength is being offset somewhat by global weakness, including a slowdown in China, and a stronger USA dollar, which is hurting US exports.
“In order to put the economy back on track, we would have to cut interest rates back to zero and possibly even resort to unconventional policy tools, such as more quantitative easing”, Evans said.
“Although U.S. economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centred on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period”, the minutes said.
The USA dollar also inched down against most major currencies following the dovish Fed minutes, giving additional support to gold futures Friday.
USA government debt. Wall Street stocks pared their initial gains, and in tandem, Treasurys prices turned steady or slightly higher. That was the main reason the Fed did not raise interest rates in September.
“I maintain that the broad economy continues to move ahead at a satisfactory pace”, Mr. Lockhart said. In an updated outlook, the International Monetary Fund said the world economy will grow 3.1 percent this year, down from a July forecast of 3.3 percent and from 3.4 percent growth last year. But Fed officials, including Chair Janet Yellen, have stressed that the rate increases will likely be very gradual, meaning that rates would still remain near historic lows for a while.
Share markets also extended a run of gains as confidence returns to trading floors, with most regional exchanges more than one percent higher. He noted that the performance of consumer spending data will be of particular importance over coming months.
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In stocks – good news is bad and bad news is good as the sole stimuli in markets and the biggest hope is for “looser for longer.’ And if the Fed minutes from yesterday told us anything, it’s that the Fed is reticent to hike if the environment isn’t right”.
