According to 77% of economists in a Bloomberg survey taken August 7-12, the Fed will act at its September 16-17 meeting.
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The local central bank buying in the U.S. dollar offset the effects of a rebound by other regional currencies, including the Japanese yen, amid reduced chances that the U.S. Federal Reserve will raise interest rates with effect from September, dealers said. A couple of officials anxious that delaying a rate hike further eventually could lead to “an undesirable increase in inflation or have adverse consequences for financial stability”.
The details of the Feds deliberations come four weeks before it gathers next for what could be a pivotal meeting.
With a September rate hike looking unlikely, some were expecting to see a lift in U.S. equity markets. Only one member voted for a hike last month.
Stocks recovered some of their losses after the release of the Fed minutes, but the modest recovery quickly dissipated.
The Fed considers price stability and full employment as its dual mandate in managing the monetary policy. “The news flow has been more bullish to gold after the Chinese central bank currency devaluation“, Macquarie analyst Matthew Turner said. But “several participants noted that a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook”.
Since then, the situation in China has grown more worrisome. The action has raised new concerns about the dollar, which has been rising in value for a number of months.
The Fed’s ambiguity on top of cheap oil and struggling China has created additional problems for emerging economies.
The Core CPI, which strips out food and energy prices, also inched up 0.1% from its June level, below expectations for a 0.2% monthly gain.
“It was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation”, the minutes said.
While most members judged that “conditions were approaching that point” where a rise would be justified, they also expressed concern over “spillovers” from slower growth in China, the stronger US dollar and the ongoing weakness in the labour market.
Overall, the panel “concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met”.
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But the discussion at the Fed’s July meeting seemed to set the table for that eventuality.
