“The economy remains on a satisfactory track, and, speaking for myself, I see a liftoff decision later this year at the October or December FOMC meetings as likely appropriate”, he told an audience of business reporters in New York.
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The dollar fell to one-week lows against the euro and yen on Thursday as investors grew cautious about the impending release of minutes of last month’s US Federal Reserve meeting, which could shed more light on the central bank’s somber outlook on growth and interest rates. While many FOMC officials expect to start increasing interest rates this year, a number of policymakers wish to see the jobless rate fall below the full employment level and for inflation to go up. While investors have fixated on the likely timing of that decision – whether at the Fed’s October or December meeting – Evans comments signaled that the rate hike debate is a much broader one. But he said the economy will need to further improve for the Fed to raise rates from record lows. This has introduced further market uncertainty about whether the US economy has fundamentally slipped down a gear amidst slow global growth and a strengthening dollar. The reaction from the fixed income market has been minimal; bond dealers have already repriced their Fed tightening expectations since last week’s jobs report (Oct. +3%, December 28% and Mar +52%). The trouble, he said, is that this strength is being offset somewhat by global weakness, including a slowdown in China, and a stronger USA dollar, which is hurting US exports.
“The USA dollar is down while broader market sentiment is favorable after yesterday’s generally dovish Fed minutes”, said Eric Viloria of Wells Fargo.
At the meeting, Chairwoman Janet Yellen and other Fed officials declined to raise interest rates from the near-zero target at which they have been held since the financial crisis.
He said it was too soon to answer his own question.
Spot gold was up 1.2% at $1,152.06 an ounce by 9.30am GMT, after touching a three-week peak of $1,154 earlier in the session.
The U.S. Department of Agriculture has slightly lowered its corn and soybean harvest estimates.
Central Bank thoughts have the dollar under pressure: Yesterday’s Fed minutes have certainly lengthened the odds for a rate hike this year.
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“In part because of the risks to the outlook for economic activity and inflation, the committee decided it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and bolstering members’ confidence that inflation would gradually move up toward 2 percent over the medium term”, the minutes said. “Tighter financial market conditions and greater volatility contributed to a reduction of the odds that market participants appeared to place on the first increase in the federal funds rate occurring at the September FOMC meeting and to a flatter expected path for the policy rate thereafter”.
