“If you look at the interest rate probability according to the Fed fund futures, on August 13 it was showing 50 percent for September and now it’s down to 32 per cent”.
With the unemployment rate at a seven-year low of 5.3 percent, analysts have been eyeing a rate increase at the September 16-17 meeting. I think the dollar is oversold in the near term.
The staff report on inflation and the economy went even further: “Although energy prices and non-oil import prices were expected to begin rising steadily next year, the staff continued to project that inflation would be below the committee’s longer-run objective of 2 percent over 2016 and 2017″.
Most US Federal Reserve officials believe conditions for tightening monetary policy were approaching but failed to give clear signals on the timing of the first interest rate hike in almost nine years.
Gold prices rallied to a five-week high on Thursday, after the minutes of the Federal Reserve’s July meeting fanned hopes that the central bank could delay raising interest rates till the very end of 2015.
“The minutes show the Fed was concerned about disinflationary pressures coming from China before China’s move to allow its currency to depreciate”, said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, California. “Many participants indicated that their outlook for sustained economic growth and further improvement in labor markets was key”.
The divided opinion means US markets are likely to be on tenterhooks until the next policy meeting in September. While most members judged that “conditions were approaching that point” where a rise would be justified, they also expressed concern over “spillovers” from slower growth in China, the stronger US dollar and the ongoing weakness in the labour market.
Some noted the “significant progress” the economy has made over the past few years and warned against “overemphasizing month-to-month changes in incoming data.”.
The odds of a September Fed lift off have dropped in the wake of yesterday’s Fed Minutes as traders focused on the members reference to inflation. But “several” officials noted that “some noticeable margins of slack remained”, including a high share of employees working part time because full-time jobs were not available.
LONDON – Gold steadied on Friday having hit its highest in more than six weeks and was heading for its biggest weekly climb since mid-January as more bad economic data from China rattled financial markets.