In the U.S., the Fed expected the labor market to continue to strengthen even as some members noted that a slowdown in job creation might lead to a delay in future interest rate hikes, the July minutes show. “I don’t see how these minutes will have changed anyone’s opinion of when the next Federal Funds Rate hike will be”.
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Mr Dudley said the USA central bank needed to watch “the broad supports for the economy” and how inflation played out “in the coming months”.
“Inflation has continued to run below the Committee’s 2 percent longer-run objective”, the Board of Governors for the Federal Reserve System said in the minutes.
Even with the US’ positive economic outlook, which Atlanta Fed President Dennis Lockhart also said is expected to “accelerate” in the second half of this year and next year, justifying a rate hike in September, analysts say that the USA central bank may keep the rate steady for the time being given its low inflation rate, along with external uncertainties on Brexit and a slowdown in China.
The latest minutes from the U.S. Federal Reserve did little to move North American stock markets Wednesday, as traders found themselves still looking for more direction on interest rates.
Growth is expected to pick up in the second half of the year, which would further bolster the case for more rate hikes. But many think the Fed will lack enough certainty to act, especially if inflation remains far below the Fed’s target.
Wall Street has been trading at record highs in the past few weeks, supported by better-than-expected corporate earnings and expectations of the Fed keeping rates low.
The minutes released on Wednesday closely parallel the message the Fed sent in a statement it released after its July meeting.
Investors will parse the minutes, due at 2:00 pm ET (1800 GMT), for hints on when the Fed would next raise rates, in light of New York Fed President William Dudley’s hawkish comments on Tuesday.
The Fed “certainly gave no indication that they were on the brink of pushing the button – that could be seen as slightly dovish relative to market positioning”, said Steven Englander, global head of Group-of-10 currency strategy at Citigroup Inc.in NY. Recent economic strength, most notably the job report in July, has added fuel to the growing suspicion the Fed could move to slow things down.
“What you are seeing is volatility on speculation about when the U.S. Fed will raise rates and that has been the main driver (of gold prices)”, Simona Gambarini, an analyst at Capital Economics said.
The Fed’s July decision to leave rates alone was backed by a 9-1 vote.
Federal-fund futures, which investors use to bet on the Fed’s interest-rate policy, pointed to a roughly 50% chance of a rate increase by the end of the year, according to CME Group.
So in the absence of the economy firing on all cylinders, Fed officials have had a hard time justifying a rate hike since initially boosting the benchmark rate out of near-zero territory in December. Historically speaking, the Fed chooses not to raise rates in a presidential election year, but because of the lead Hilary Clinton holds in the polls, we believe markets have been able to begin pricing in the election results.
Fed officials have also expressed concern about the tepid pace of USA growth, weakness in worker productivity, excessively low inflation and the long-term consequences of Britain’s vote to leave the EU.
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In contrast to the Minutes to the June 14-15 FOMC meeting, which were overwhelmingly dovish, the Minutes to the July 26-27 FOMC meeting leaned somewhat hawkish, but also remained very cautious.
