Fed Members Divided Over Liftoff Date

Market Trends - 18/08/2016

The recent Federal Reserve meeting minutes seem to offset statements made earlier this week by Fed President Dudley. His statement about “September [being] a possibility to raise interest rates” appears to have vanished in the mist as July’s minutes clearly indicate that policymakers are worried about inflation being too far from its 2.00% objective. Fresh data announced earlier in the week indicated a deceleration in the cost of living for the United States. Meanwhile, the consumer Price Index managed to drop to 0.80%, falling from June’s value of 1.00%. The Producer Price Index also points out that the inflation rate may continue to remain subdued in the coming months. Fed President Bullard on the other hand, echoed on the well-known line that economic data will be closely monitored and the central bank should be patient in raising interest rates as economic growth persists at low levels. These recent statements as well as the minutes clearly indicate a dichotomy between central bank policymakers and in the meantime push a possible rate hike further down the road.

The Fed’s minutes continued to comment dovishly on a slowdown in the labor market, as it is presumed that the US economy is at near full employment, while also caveats from foreign economies may affect investments in the US. Officials noted that job growth over the second quarter was slower compared to the first quarter whereas the ripples from the UK referendum are also expected to affect the outlook for global growth in the long run. The Federal Open Market Committee has left interest rates unchanged at 0.50% during July’s meeting, after having rates kept to near zero values for almost 7 years while also promising more hikes to come over the current year. The minutes have reversed the dollar’s strength from Fed Dudley’s statements, tending towards a bullish motion against the Euro, topping a price of 1.1314 before continuing to move further to the upside.

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