Last month, the Fed held off raising rates in the face of the slowdown in China, global market volatility and falling commodity prices. A few Fed voting members during the meeting said their confidence that inflation will climb to 2% “had not increased” since the July meeting. All of those could keep US inflation, now at 1.3 per cent, below the Fed’s 2 per cent target.
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The Fed minutes indicated policymakers were concerned about reaching their inflation target of 2 percent as well as the impact of the global economic slowdown. While all the major indexes moved in and out of their correction territory to end a volatile August in the red, familiar concerns surrounding China dampened investor sentiment last month.
Dudley, in a CNBC television interview, said that a rate hike was “possible in October“. They believe that it will be a “prudent” decision to wait for more data to confirm the economy’s growth before deciding on hiking rates.
The chances of a move were hammered in August when Beijing surprisingly devalued its yuan currency, fuelling worries about the Asian economic giant while last Friday’s below-par jobs data also struck a blow.
Investors are now positioning themselves for corporate earnings, which pick up steam next week with most of the nation’s largest banks report their results, as well as big companies like Intel, Netflix, UnitedHealth and General Electric.
Dudley suggested that other reports on the economy painted a brighter picture.
Now, what concerns officials most is that foreign economic growth remains weak due to GDP contractions in Canada, Japan, Brazil, and Taiwan, even as activity expanded at a moderate pace in the euro area and the United Kingdom. “Cumulative progress is consistent with liftoff soon”, he says.
The Fed didn’t raise its key interest rate in September because USA inflation hadn’t picked up and the global economy had worsened.
Gold prices edged higher in European morning hours on Friday, as weakness in the USA dollar continued after the minutes of the Federal Reserve’s latest policy meeting gave little indication on the timing of a rate hike.
The Fed’s action was approved on a 9-1 vote with Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissenting. The Fed’s next meeting begins October 27. But he cautioned, “That view is not immutable and will respond to economic developments over time”. The final meeting of the year is scheduled for mid-December.
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Central Bank thoughts have the dollar under pressure: Yesterday’s Fed minutes have certainly lengthened the odds for a rate hike this year. But Fed officials, including Chair Janet Yellen, have stressed that the rate increases will likely be very gradual, meaning that rates would still remain near historic lows for a while.
