“They’re afraid of being wrong”.
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United States equity indices slipped on Wednesday, with the majority of sectors trading lower ahead of the crucial Federal Reserve (Fed) July meeting minutes due later in the afternoon.
So in the absence of the economy firing on all cylinders, Fed officials have had a hard time justifying a rate hike since initially boosting the benchmark rate out of near-zero territory in December. These people believed a rate increase “was or would soon be warranted”.
In its minutes, the Federal Reserve again said that at least one increase will likely occur before the end of the year – perhaps as early as the panel’s next meetings September 20-21.
The FOMC’s continued dovishness can mainly be blamed on inflation remaining below target, which was attributed to the weakness of oil prices and non-energy exports. “Market expectations for a rate hike in September are still low, and this committee tends to be cautious”, said Sara Johnson and Ozlem Yaylaci, economists at IHS Markit. There does seem to an array of opinions at this meeting.
All eyes are now on minutes from the Fed’s last meeting, due later on Wednesday, for some clarity on how close the bank really is to tightening borrowing costs for the second time since the 2008 financial crash. Still, it said it planned to monitor global economic threats and financial developments to ensure that they don’t slow the economy.
The minutes came a day after New York Fed President William Dudley said “it’s possible” to raise rates at the September 20-21 policy meeting and Atlanta Fed President Dennis Lockhart said a hike next month is in play. Dudley said he thought that solid job growth would continue and that the sluggish pace of the USA economy would pick up. Some members backed a July hike but others wanted to see more data on the economy and inflation.
“The data since the July meeting has not been outstanding, it has been a little mixed if not poor”, said Chris Gaffney, president of Everbank World Markets in St. Louis. At that meeting, the Federal Open Market Committee left the benchmark interest rate in a range of 0.25 percent to 0.5 percent. Historically speaking, the Fed chooses not to raise rates in a presidential election year, but because of the lead Hilary Clinton holds in the polls, we believe markets have been able to begin pricing in the election results.
It was up 0.5 percent at 100.81 yen, having fallen as low as 99.550 yen in the previous session, its lowest since the stormy aftermath of the Brexit referendum on June 24 sent investors scrambling for the perceived security of Japan.
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.
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Some members warned that waiting too long to raise rates creates risks of its own. Many experts took that to mean the Fed wouldn’t raise rates anytime soon. Yet other members viewed labor markets as being at or close to maximum employment and expected inflation to rise. Some Fed officials also expressed concerns that weak capital positions and sizable bad loans at some European banks could also weigh on the continent’s growth prospects.
