The Fed raised the short-term rate it controls in December for the first time since 2006. The FOMC was divided in June on the timing of the next rate increase. “It’s safe to assume that investors believe that September is not going to be the month where the Fed pulls the trigger”.
Advertisement
“We still expect a September hike and expect the majority of voting members to support it”, said Laura Rosner, an economist at BNP Paribas.
Following that, market-based measures of the chances the Fed would lift rates next week dropped to just 15 percent from 24 percent the day before, according to CME Group’s FedWatch tool.
Despite this, Australia’s currency has not fallen as much as expected in response to cuts in interest rates that have taken the cash rate to a record low 1.5%, Reserve Bank of Australia assistant governor Christopher Kent said Tuesday.
US RATE FOCUS: The main point of interest in markets at the moment centers on the Fed and when it will raise interest rates again.
The pan-European index rose as much as 0.6 per cent in morning deals as investors took some comfort from Ms Brainard, who said that the Fed should avoid removing support for the United States economy too quickly.
“To the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling”, she said.
U.S. RATE WATCH: On Tuesday, Lael Brainard, an influential Fed policymaker, suggested in a speech that the risk that higher rates might derail growth was greater than the risk that lower rates might ignite inflation.
Dovish comments from Fed member Brainard yesterday are again pushing corporate bond issuance back into action, especially Euro dominated debt which had been sidelined awaiting Fed direction. Economic weakness “counsels prudence”, she said. Investors still saw just higher than 50/50 odds for a December hike.
On Friday US equity markets lost more than two percent in reaction to more hawkish remarks from Boston Fed President Eric Rosengren.
She said on Monday the low interest rate policies across advanced economies could make the United States more vulnerable to spikes in the value of the dollar which could put downward pressure on inflation. Investors and dealers do understand that a change is afoot, but when and how remains anyone’s guess, hence the intraday repricing of Fed fund futures that may or may not end up being the new norm depending on whether central bankers have the stomach for market disruptions.
Minneapolis Fed President Neel Kashkari said “politics does not play a part” in the Fed’s deliberations and that current low US inflation means there is no “huge urgency” to hike.
Advertisement
The New Zealand second quarter current account came in at a deficit of NZ$945 million, compared to NZ$410 million seen, and a NZ$7.38 billion gap compared to NZ$6.74 billion expected, hitting against 2.70% seen.
