Aug 17 USA stocks were near flat in volatile trade Wednesday after minutes from the Federal Reserve’s last policy meeting showed some voting members expect an interest rate hike will be needed soon but also general agreement that more data is needed first.
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The dollar was slightly stronger in major pairings, showing a little support from the market after William Dudley, head of the Fed’s NY branch, said a rate hike was possible next month and that Wall Street investors were too “complacent” about the prospect of higher rates.
Analysts said traders are positioning for the minutes, due at 6.00pm GMT, for hints on when the Fed would next raise rates, but also noted Wednesday’s move lower was related to technical positioning after the market’s recent highs.
As an economist (I am chief economist at jobs site Indeed.com), I am looking beyond the next rate hike, which should come at some point this year.
Eyes were on the release of the minutes of the USA central bank’s late-July meeting, slated for 1800 GMT, for hints of how bullish the Fed is on the United States economy after a top official warned on Tuesday that markets were underestimating the possibility of a rate increase as early as September. But they did not indicate when they would likely raise rates.
By the July meeting, those fears had eased and upbeat language in the Fed’s policy statement appeared to open the door to a rate hike as early as September. Still, it said it planned to monitor global economic threats and financial developments to ensure that they don’t slow the economy.
Mr Dudley said he thought that solid job growth would continue and that the sluggish pace of the U.S. economy would pick up. Esther George, president of the Kansas City Fed, dissented in favor of an immediate rate increase.
Last December, the Fed had penciled in four rate hikes this year.
Fed officials voted 9 to 1 to hold rates steady at the meeting.
The Fed raised rates in December for the first time in almost a decade, but it has since kept rates unchanged amid financial market volatility, a global growth slowdown and tame USA inflation.
“The minutes contained more concrete indications that a consensus to raise rates is slowly building”, said Brian Dolan, head market strategist at Drivewealth in New Jersey.
Investors will be paying close attention to a speech that Yellen will give on August 26 to an annual conference of central bankers in Jackson Hole, Wyoming, for any further clues about the Fed’s timetable for a rate hike.
Still, it’s not clear how much investors should read into the July meeting minutes.
The markets may be looking at what the Federal Reserve does in the near term, but there are longer term factors you should also consider that the Fed hasn’t been discussing. Financials, which stand to gain in the event of rate hike, declined the least.
Chairwoman Janet Yellen and her fellow central bankers are contending with opposing data of a tightening U.S. labour market challenged by weak consumer and retail data.
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In addition to lingering problems in Europe, some officials noted weakness in other parts of the global economy, including uncertainties over China’s currency policies and the growth in Chinese debt.
