The Atlanta Fed projects third quarter growth to be 3.6%, which would be well above the 1% growth America averaged in the first half of the year.
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San Francisco Fed President John Williams on Thursday said that, if the USA central bank waited too long to raise rates, it could be costly for the economy and that a possible rate hike in September should be in play.
“The minutes paint a balanced picture and support the market’s view, according to which the likelihood of a small rate step by the end of the year is not even 50 percent”, said Antje Praefcke, currency strategist at Commerzbank.
Traders assign roughly coin-flip odds to a Fed hike by year-end, according to futures prices compiled by Bloomberg.
The greenback dropped against most of its major peers after minutes of the Federal Reserve’s last meeting damped prospects for higher borrowing costs.
The euro hit a near eight-week high against the dollar of $1.1338 in early trading, and the dollar touched a almost eight-week low against the Swiss franc of 0.9570 franc. “A couple of members preferred also to wait for more evidence that inflation would rise to 2 percent on a sustained basis”.
Investors had raised bets earlier this week for a rate increase this year after two Fed policymakers said the economic stars now appear to be aligning despite weak USA growth in the first half of 2016.
Yields on two-year notes briefly touched a near three-week high of 0.758 percent but failed to reach the July peak of 0.778 percent and were last at 0.750 percent.
Yields on French and Italian bonds are also near record lows, although Portuguese debt bucked the trend: The yield on its 10-year note climbed to 2.982%.
“The less-hawkish-than-expected minutes are leading investors to pare some of their curve-flattening positions, which pushed the curve steeper right after the minutes’ release”, Goldberg of TD Securities said.
It had fallen to the lowest level since June 24 overnight in response to the Fed’s July meeting minutes this week saying more data is needed before interest rates can rise.
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The minutes stated that the Brexit did not appear to pose a threat to the US economy in the near term and that recent, positive GDP and jobs numbers “provided some reassurance that a sharp slowdown in employment and economic activity was not underway”.
