Asia Stocks to Fall as Dovish Fed Minutes Spur Yen: Markets Wrap

Feb 24, 2017, 00:16
Asia Stocks to Fall as Dovish Fed Minutes Spur Yen: Markets Wrap

Minneapolis Federal Reserve Bank President Neel Kashkari suggested that the central bank shouldn't raise rates quickly to head off inflation and said the USA labor market has "more room to run", reports Reuters.

Some officials believed it might be appropriate to move "potentially at an upcoming meeting", according to minutes of the January 31-Feb.1 meeting, released Wednesday, which suggest they could consider raising their benchmark federal-funds rate as soon as their next policy meeting March 14-15. 1 gathering showed Fed officials wrestling with uncertainty on issues ranging from the Trump administration's fiscal stimulus plans to the headwinds a rising dollar may pose.

The central bank said Wednesday that the Committee chose to "maintain the target range for the federal funds rate at 1/2 to 3/4 percent".

Kashkari, a voting member of the Fed's policy-setting panel this year, declined to say when he thinks the Fed should next raise rates. Although nothing in the minutes directly suggested that a March rate hike is off the table, it appears that the markets have broadly interpreted the minutes to be less hawkish than the recent speculative build up had afforded. Dallas Fed chief Robert Kaplan said earlier this month that the central bank should move "sooner rather than later". Europe's currency dropped a fourth day, briefly passing 1.05 per dollar for the first time in more than six weeks as sovereign bonds across the region advanced.

Officials will see new inflation and employment data before that meeting.

TRADER TALK: "Although many Fed members have repeatedly voiced that it may be appropriate to raise interest rates again 'fairly soon, ' it is the lack of commitment to a hiking timeline and overall ambiguity that continues to leave investors empty handed", said Lukman Otunuga, an analyst at FXTM.

They stressed the importance of disabusing investors of their faith in a permanently dovish Fed, by "communicating that policy will respond to the evolving economic outlook".

The Fed raised the fed-funds rate in December to a range of between 0.5% and 0.75%. That could trigger inflation pressures and force the Fed to boost rates at a faster pace than financial markets expect.

Some Fed policy makers were concerned that Trump's planned fiscal boost - which is coming at a time when the Fed believes that the economy is at full employment - could cause the United States economy to overheat.

"Participants emphasized that the Committee might need to change its communications regarding the anticipated path for the policy rate if economic conditions evolved differently than the Committee expected or if the economic outlook changed", the summary said. In fact, Williams said in an interview on February 3 that it might make sense for the Fed to increase borrowing costs next month given the performance of the economy.

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