Meanwhile, U.K. data was more upbeat, with a surprise monthly rise of 1.4 percent in retail sales in July, despite the vote to leave the European Union. The Fed minutes struck a dovish tone in contrast to comments this week from officials who signaled a willingness to lift borrowing costs as soon as next month.
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While Dudley said he expects growth to reach about 2.5 to 3 percent in the second half of the year, he said the labor market would factor more in his rate-hike decision in part because USA productivity remains a wildcard. Traders will now seek clues on the timing of the next rate hike from Fed Chair Janet Yellen’s speech at a meeting of global policy makers in Jackson Hole, Wyoming, later this month.
“The market has been Fed-driven so far, it is going through a phase where it will pivot from the Fed to more emphasis on companies growing their revenues”. The minutes disappointed those who had bet the Fed could be turning more hawkish, after New York Fed chief William Dudley said on Tuesday it could possibly raise rates as soon as September.
The U.S. dollar strengthened after the release of the minutes, while U.S. stocks and prices of shorter-dated U.S. Treasuries pared losses.
“Recent data would therefore suggest a hike is not imminent”.
“Right now, observers think a September policy rate hike is off the table”, Richard Clarida, global strategic adviser at bond giant PIMCO, wrote in a blog. Earlier this week it edged close to its July trough of $1.2798. 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 last rate hike, the first in almost a decade, was introduced by the Fed last December, but market volatility and a global growth slowdown has meant rates have remained unchanged since then. But many think the Fed will lack enough certainty to act, especially if inflation remains far below the Fed’s target.
Investors will be paying close attention to a speech that Yellen will give on August 26 to an annual conference of central bankers in Jackson Hole, Wyoming, for any further clues about the Fed’s timetable for a rate hike.
Investors are believing they will experience a single rate increase by the end of next year, according to federal funds futures contracts. A currency analyst said the Fed minutes had “left much to the imagination”.
But Fed officials also noted the risks of waiting too long. “Indeed, these reports reinforce my view that labor market conditions continue to improve”, he said in prepared remarks to a press conference.
Gold prices rose Wednesday, erasing earlier declines, after the minutes were released. But they did not indicate when they would likely raise rates.
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However, several participants suggested there would likely be ample time to react if inflation rose more quickly than they now anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis. “It’s another wait-for-more-data, that’s the message”.
