Canada’s main stock index ended barely lower on Wednesday, dragged down by resource stocks but paring sharper losses after minutes from the last Federal Reserve meeting showed mixed opinions on when conditions may allow for higher USA interest rates. Until such a regime change occurs, Bullard has said he feels there is no reason to raise key interest rates a few times, to 63 basis points, one quarter-point increase above their current level.
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However, the minutes did indicate that the Fed feels economic condition in the United States were improving.
A key concern for officials is the stubbornly slow rate of inflation and that low interest rates could hurt financial stability. Specifically, many officials want to see additional indications inflation is rising toward the Fed’s 2 percent target before taking another step. “While a growing number of policymakers likely wouldn’t oppose lifting rates at the next meeting, the majority still seem keen to wait until the economy strengthens further and downside risks abate”. Investors are waiting for the minutes from the Federal Reserve’s July policy setting meeting, due to be released later in the afternoon.
In that statement, the Fed noted that the job market had rebounded from a brief slump.
Gold steadied on Wednesday, after moving in both directions following the release of minutes from the U.S. Federal Reserve’s July meeting, which showed the central bank’s policymakers expected an interest rate hike soon but were still awaiting more data. Dudley said he thought that solid job growth would continue and that the sluggish pace of the USA economy would pick up.
According to the minutes, “Some participants viewed recent economic developments as indicating that labor market conditions were at or close to those consistent with maximum employment” suggesting that one of the Fed’s mandate is being met and May’s employment report was just an anomaly. Many experts took that to mean the Fed wouldn’t raise rates anytime soon.
The minutes didn’t technically offer any true Fed rate hike news, considering the central bank’s July rate decision already had been made public.
Bond prices fell yesterday after a couple of hawkish comments by the Fed officials, who raised the possibility that the Fed may increase interest rates in September.
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Still, even one rate hike this year would be be much lower, considering the Fed had projected last December that it would raise rates four times this year. “Historically speaking, the Fed chooses not to raise rates in a presidential election year, but because of the lead Hillary Clinton holds in the polls, we believe markets have been able to begin pricing in the election results”.
