ANALYST’S COMMENT: “She highlighted global challenges such as muted inflation and global uncertainties and particular concerns for the USA economy”, said Bernard Aw, a market strategist at IG in Singapore.
Advertisement
The central bank last raised borrowing costs in December, ending seven years of near-zero rates. “I don’t think we are going to see any major move until the Fed meeting next week”.
Given Brainard’s dovish reputation, her remarks do not represent much of a change in and of themselves. Only 15% of traders are expecting the Fed funds rate to rise to between 50 and 75 basis points by September. The mixed views from Fed officials had warmed up traders to an early hike, which had sapped demand for a kiwi that’s been buoyed by New Zealand’s relatively high interest rates and upbeat economic outlook.
“Several also downgraded their expectations for further tightening from the Fed next year, the survey found”. Food prices account for 19 percent of the consumers price index, the RBNZ’s mandated inflation target. More rate hikes were expected to follow early this year, but the Fed has held off.
However, the impact of Brainard’s dovish remarks faded Tuesday as investors reassessed the timing of a next rate hike. She argued that the “new normal counsels prudence in the removal of policy accommodation”.
Brainard’s comments were the last from a Fed official ahead of the central bank’s policy meeting on September 20-21.
In her speech, Brainard cited the global problems as a reason to be cautious about raising US rates.
Their comments sent U.S. and European stocks tumbling Friday and hammered Asian equities Monday.
The FTSE 100 was 0.27% down at 6,683 by 10am, sitting in the middle of the European exchanges, led lower by Spain’s Ibex index, 0.38% lower on the day. Investors still saw just higher than 50/50 odds for a December hike.
Debate on whether or not the Federal Reserve will raise interest rates this year, as well as fluctuating signs on China’s economic strength have influenced copper prices of late, keeping the metal trading in a narrow range.
In her speech in Chicago, Brainard suggested that the risk that higher rates might damage a fragile economy exceeds the risk that lower rates might ignite inflation.
The Fed surfaced as a campaign issue Monday when Republican nominee Donald Trump accused Fed Chair Janet Yellen of holding rates “artificially low” to keep the economy rolling and benefit President Barack Obama.
ASX-listed Fortescue Metals was up 0.9%, retracing much of an initial more than 4% jump, after the company announced it would repay $700 million US of its 2019 term loan, and save on annual interest valued at about $26 million U.S.
Advertisement
“In the short-term, any dollar-positive data should be bad news for gold, unless the equity markets go on a free fall”, he told MarketWatch.
