Yields on longer-dated Treasuries fell as investors braced for the Fed to gradually raise rates after December.
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Taking the disappointing August and September job reports into consideration, some Fed officials felt the slowed job growth was “still above the rate consistent with stable or declining labour market slack”; some officials attributed to the slower pace to tightening in the labour market, as well as a sign of uncertainty.
Chinese markets were calmer with the CSI300 index of the largest listed companies in Shanghai and Shenzhen up a slim 0.2%.
However, the minutes also pointed to a debate among Fed policymakers about the USA economic outlook, which may have affected sentiment about an impending rate hike in December, some analysts said.
In particular, Fed officials said the jobs market is improving and inflation is starting to move towards their 2 per cent annual target.
Once rate hikes start, he said, the Fed will reassess conditions at each meeting and will pause further rate hikes if needed. The policy change is expected to continue pushing the United States dollar higher, pulling capital from emerging markets and elsewhere towards rising United States rates.
“I think this is pre-Thanksgiving week short-covering which has its roots in the Fed minutes yesterday”, said Simon Weeks, head of precious metals at the Bank of Nova Scotia. The FOMC struck a particularly hawkish tone in the minutes released yesterday, providing markets with a strong degree of certainty that we will see a hike in December.
When rate increases do begin, they will occur at a gradual pace, officials reiterated in the minutes.
The conventional wisdom is that lower interest rates boost stock prices, and that one of the drivers of the healthy stock market since 2009 has been the Fed’s low interest rate policy.
Members said it might be appropriate to hike rates from near-zero levels next month provided there were no “unanticipated shocks”.
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Investors are now awaiting the end of a two-day policy meeting at the Bank of Japan to see if it will add to its stimulus programme, days after data showed the nation s economy had slipped back into recession. The S&P 500 benchmark index plunged 20 percent in the 12 months following the initial rate move. The euro added about 0.4 percent to $1.0703, pulling away from Wednesday’s seven-month low of $1.0617, with its upside capped by expectations that the European Central Bank will take fresh monetary easing steps next month continuing to pressure the common currency. The Fed has said it needs exactly that confidence before raising rates.
