The uptick in inflation was slightly lower than analyst forecasts of 0.2pc, and will give the Federal Reserve “pause for thought” over a September rate rise, said Paul Ashworth, chief US economist at Capital Economics.
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Higher interest rates from the Fed could shrink the value of outstanding bonds as higher rates make newly minted bonds more attractive to buy.
September federal funds futures implied traders expect a 45 percent chance of the Fed raising rates in September, while likelihood of a December rate increase held steady at 73 percent according to CME Group’s FedWatch program, Reuters reported.
A series of mixed US economic indicators since the meeting has clouded the outlook for a rate hike, which FedChair Janet Yellen earlier signalled was on track for sometime this year.
Get ready: the long awaited rate hike could be here in four weeks.
We’ll know more about the Fed’s thinking Wednesday afternoon when the Fed minutes publish at 2 p.m. Stocks recovered some of their losses after the release of the Fed minutes, but the modest recovery dissipated and the market basically ended the day roughly where it was most of the session.
Most Fed policymakers “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point”, the minutes said.
The labour market has shown continued progress since the FOMC meeting, with US firms adding 215,000 jobs in July compared with the year-to-date monthly average of 211,000. A “couple” worried that an appreciable delay in hiking would result in an “undesirable increase in inflation” or otherwise hurt financial stability. But “several” officials noted that “some noticeable margins of slack remained”, including a high share of employees working part time because full-time jobs were not available.
Fed officials have indicated that they don’t need to see wage growth or inflation hit their targets before a rate hike.
“Members are satisfied with improvements in the labor market, but it is inflation that has members leaning one way or the other”, said Patrick Newport, US economist at IHS Global Insight. “The economy is nearing full employment, productivity has stalled, yet inflation shows no signs of taking off”. The Consumer Price Index edged up 0.1 percent in July after advancing 0.3 percent in June, marking the sixth straight month of increases, the Labor Department said Wednesday, marking the sixth straight month of gains.
“No decisions regarding the Committee’s strategy for ceasing or phasing out reinvestments were made at this meeting”, the minutes said.
In China, the recent stock market declines had seemed to have limited implications for its economic growth.
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Yum Brands rose 1.4 percent to $85.39, a day after the owner of the KFC and Pizza Hut chains named new leaders for its China division as activist investors lobby the company to spin off that business.
