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Treasurys fall as traders gauge Fed path on rates
Federal Reserve officials believed last month that near-term risks to the US economy had subsided and that an interest rate increase could soon be warranted.
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“The fear of the market is that they may raise at the wrong time”.
Some Fed officials also anxious that a prolonged period of very low rates could cause investors to misallocate investments or misprice risk, possibly leading to a destabilizing financial bubble and bust.
Most Fed officials expect growth to pick up in the second half of the year, but several still harbor doubt, especially because inflation has run below the Fed’s target for so long. These people believed a rate increase “was or would soon be warranted”.
Inflation has been a key factor in determining the decision, and has remained well below the central bank’s 2% target, which is the level judged to be healthy for the USA economy.
At its July meeting, the Fed opted to hold rates between 0.25% and 0.5%.
St. Louis Fed President James Bullard is scheduled to speak at a conference, though no major economic data is expected on Wednesday.
“Despite their willingness and desire to raise rates, they haven’t gotten cooperation from the economy yet”, said Bucky Hellwig, senior vice-president at BB&T Wealth Management in Birmingham, Alabama. But while some members insist that continued low interest rates could hurt financial stability, some policymakers argue that more signs of recovery are needed before the central bank resumes the process of tightening or normalizing interest rates.
Heading into the release, investors had hoped the minutes might shed some light on how likely the Fed would move at their next meeting in September.
The minutes disappointed those who had bet that the Fed could be more hawkish, after New York Fed chief William Dudley said on Tuesday that the Fed could possibly raise USA rates as soon as next month.
The FOMC noted that the rate hike would depend on incoming data that will shape the overall economic outlook, but also highlighted improvements in the domestic economy such as strong job gains in June after weak growth in May.
In term of recent economic data release, the United States initial jobless claims for the week ending 12 August 2016 came at 262k, lower than the expectations of 265k, from 266k in the previous week, highlighting the USA job market remains healthy.
“I think it is possible”, Dudley said when asked the question in an interview with Fox Business Network.
Ten-year Australian government debt edged lower to 1.92 per cent, about 100 basis points down from end-2015. Esther George, president of the Kansas City Fed, dissented in favor of an immediate rate increase.
The dollar last hovered slightly above the multiweek lows. The odds of a move at the next meeting on September 20-21 are just 20 percent.
That statement was perceived by some analysts that the central bank could increase rates next month.
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At the July meeting, the Fed kept its benchmark rate in a range of between 0.25% and 0.5%.