Big apple/Detroit Two powerful Federal Reserve policymakers on Friday fortified Fed Chair Janet Yellen’s note that the importance rate hike is originating by year’s end.
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“Many participants judged that the effects of these developments on domestic economic activity were likely to be small, but they acknowledged the risk that they might restrain US economic growth somewhat”.
“In determining how long to maintain this target range, the Committee will assess progress-both realized and expected-toward its objectives of maximum employment and 2 percent inflation”, the Fed said in a statement. Dudley did signal that while a rate hike at the October 27-28 meeting remains theoretically possible, any increase would more likely occur at the December. 15-16 meeting.
A delay, it says, will give the Fed time to allow financial conditions to stabilise, external uncertainties to wane and data to improve again.
The September minutes released by the FOMC Thursday evening suggested that policymakers are unlikely to rush to tighten rates amid concerns over a China-led global economic slowdown. It will be interesting to get further insight into what’s changed, if anything, from the last meeting and whether the jobs report has had any significant impact on their personal stance.
That was the main reason the Fed did not raise interest rates in September.
The USA dollar has been under pressure recently by diminished expectations for a rate hike by the Fed this year in the wake of last Friday’s unexpectedly weak U.S.jobs report for September.
“Some participants judged that the downside risks to the outlook for economic growth and inflation had increased”, the minutes said.
When the Fed starts raising rates, something it has not done in nine years, it will mean higher rates for consumer and business borrowers.
A third Fed official, Charles Evans, president of the Chicago Fed, also spoke Friday and delivered a more cautionary message: He urged the Fed to remain patient because inflation remains well below its 2 percent target.
The Fed voted 9-1 at that meeting to keep rates unchanged. He noted that the performance of consumer spending data will be of particular importance over coming months. Earlier in the week, USA exports declined 2% to $185.1bn, hitting their lowest level in three years, driven lower by a drop in overseas sales of US-produced petroleum and other industrial supplies.
“There is less of a sentiment in the market that an interest rate hike will take place anytime soon”, said Bernard Dahdah, metals analyst at Natixis.
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The dollar fell 0.3 percent against the euro, which traded at $1.1275 in the late afternoon, and slipped slightly to 119.92 yen. That’s a problem for the Fed because it needs inflation to pick up in order to justify a rate hike. In an updated outlook, the International Monetary Fund said the world economy will grow 3.1 percent this year, down from a July forecast of 3.3 percent and from 3.4 percent growth last year.
