US bond prices declined after Federal Reserve officials cautioned the market that a September interest rate hike is still a possibility.
Advertisement
Sterling rose almost 1 percent to a two-week high of $1.3173 after United Kingdom retail sales for July beat forecasts, apparently unaffected by Britain’s vote to leave the European Union.
The September meeting rate hike has undoubtedly been put back on the table because of the impressive labor results, but we continue to feel that the Fed will postpone a rise in the funds rate by citing continued concerns from Brexit and the longer term weakness in the labor market conditions index.
The minutes did not pinpoint a specific date.
27 July FOMC meeting indicated that FOMC officials were split on whether a rate hike was needed soon.
The greenback ended the day slightly lower than were it was before the minutes were released and unchanged for the day against all four of the major currencies – the euro, British pound, Japanese Yen and Canadian dollar. Both of these data sets indicate that although the US labor markets are continue to show a strong recovery, other parts of the economy are still facing issues.
With reported inflation still very low, dovish elements within the committee want to keep rates at extremely low levels in an attempt to push employment numbers even higher.
New York Fed President William Dudley, who on Tuesday unnerved the markets by saying a rate hike was possible in September, is scheduled to give a press briefing at 10:00 a.m.
In that statement, the Fed noted that the job market had rebounded from a brief slump. Some members backed a July hike but others wanted to see more data on the economy and inflation.
“They’ve been trying to talk investors into believing that they’re ready to raise rates”, Chris Gaffney, president of EverBank World Markets in St. Louis, said in a telephone interview.
“No news is good news”, said Subadra Rajappa, head of US rates strategy at Societe Generale. “Nobody would be willing to sell gold aggressively even if there is a hike in rates, with the US presidential elections in November creating uncertainty”, said Yuichi Ikemizu, head of commodity trading at Standard Bank in Tokyo.
The report contained no explicit reference to the timing of the next potential interest-rate increase, beyond noting that a “couple” of officials were advocating for one in July.
Analyst Norman Levine said the market’s non-reaction to the Fed minutes confirms that not much was expected out of the release.
Advertisement
Although near-term concerns associated with Britain’s vote to leave the European Union had dwindled, officials mentioned other threats that needed to be closely monitored, including the possibility that growth in Britain and the European Union could be slower than expected.
