The minutes from the June meeting of the Federal Open Market Committee show that nearly all the committee members and the Federal Reserve are still hesitant to increase the federal funds rate. The concern is understandable: when the Fed signalled in 2013 that the end of its quantitative-easing (QE) policy was forthcoming, the resulting “taper tantrum” sent shockwaves through many emerging countries’ financial markets and economies.
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The minutes revealed that many Fed officials expressed concern about the impact a failure to reach a deal on Greece’s debt might have on financial markets.
Separately, Fed Bank of San Francisco President John Williams said he expects the Fed to raise interest rates this year, playing down worldwide risks to a USA economy he said remains on a “solid trajectory”.
The take-away from the minutes is that September remains a viable option should the recent trend in the data continue.
But on the other hand, if the Fed raises rates too soon, there is a chance that the economy might stumble again.
“Investors should resist the urge to cash in their stock market investments, provided they are still in it for the long term”, Laith Khalaf, a senior analyst at Hargreaves Lansdown, said in a research note this week.
In this context, Fed Chairwoman Janet Yellen’s speech on Friday and her semiannual congressional testimony next week have a bigger potential to move markets than June’s minutes. The unincorporated US territory, officially a commonwealth, is struggling with a mounting debt load of almost $72 billion, which it says it is unable to pay. “These global developments have probably reduced their confidence in the outlook and raised uncertainty”. Platinum traded 0.6 percent higher at $1,037.85 an ounce after falling on Wednesday to $1,010.26, a six-year low.
The yellow metal touched $1,146.75 an ounce earlier this week, only a few dollars from its low for the year, a key support level.
“We’re looking for stabilization in commodity prices, oil prices, and the inflation data”, he said.
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“Given these costs, I anticipate that monetary policy will be insufficiently accommodative during periods at the nominal interest rate lower bound, which will lead the economy to undershoot the (Fed)’s inflation and employment objectives”, Kocherlakota said. The Fed’s next meeting is July 28-29, but economists had already ruled out the possibility of a rate increase then. While the median forecast for the rate this year was unchanged in June, seven of 17 members of the FOMC now project either one rate increase or none in 2015, up from just three in March. Many analysts pegged September.
