US interest rate hike ‘approaching’, says Fed

The euro rose 0.4 percent to 9.2734 crowns, its highest since early January, while Norway’s import weighted currency index fell 0.1 percent.


Ashworth said according to the minutes most committee members judged that the conditions for policy firming had not been achieved, but noted conditions were approaching that point.

“The reason behind the Fed not raising rates is due to problems in the emerging markets”, said Aslam. Many think the Fed will move at the September 16-17 meeting, but others argue the central bank will wait until December.

“Bearing in mind these minutes were released from the July meeting, further risk events have occurred since, in China especially, with oil prices also continuing to tumble, questioning whether or not the Fed could likely be more dovish”.

The Federal Open Market Committee’s July minutes might have tweaked market-watchers’ expected dates for a rate hike to later in the year – if not next – but, as the minutes are digested, some argue that they are still on track for September.

Policymakers “cited evidence” that the response of inflation to reduced slack in the economy “might be attenuated and expressed concern about risks of further downward pressure on inflation from worldwide developments”. Accordingly, committee members, who object to the notion inflation is reversing, have solidified a “lower for longer” forecast for the fed funds rate.

“While September remains on the table, there is little indication that officials are champing at the tightening bit, ” said Sal Guatieri, senior economist at BMO Capital Markets.

Fed officials have chose to publish the forecasts on growth, employment and inflation by showing the median value for each economic variable, which will be derived from all of the projections submitted by Fed officials. “What’s supporting gold is that from unrelentingly bad news, which we saw until late July-early August, the news flow has been more bullish to gold after the Chinese central bank currency devaluation“, Macquarie’s Turner said.

The Fed has said it wants to be “reasonably confident” in the inflation outlook before a rate hike.

And since that meeting, the picture has worsened: China last week devalued its own currency. Historically trends suggest a hike in borrowing costs could hit the dollar, which tends to move inverse to gold, and that recent lower prices could spur demand.


“Certainly, there is no clear signal of a rate hike in September and that’s what is hurting the dollar“, he added.

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