5 factors that could forestall a Fed rate hike in September

In Europe, the FTSE 100 index of leading British shares was down 0.8 percent at 6,472 while Germany’s DAX fell 1.1 percent to 10,800. Heating oil fell 4.1 cents to close at $1.518 a gallon.

The U.S. dollar turned broadly lower after the minutes of the Fed’s July meeting indicated that there was little consensus on when to start raising interest rates. In other words, the Fed’s own limited policy toolkit – an issue the Wall Street Journal explored in a recent article – was seen as another threat.

Ads Securities said: “After having raised the possibility of a March hike, then June, then September they [the Fed] have had to face the fact that the numbers are not there, and the rate hike won’t happen next month”.

The central bank has kept a key rate that it controls at a record low near zero since December 2008.

The US dollar fell more than one cent against the euro on Wednesday (Aug 19) after the release of the minutes, and finished at US$1.1121 to the euro and at 123.89 yen. MSCI’s all-country world stock index declined 0.9 per cent.

They also showed some worry over the impact of China’s slowdown and market turmoil.

The FOMC’s meeting came before last week’s action by China to weaken its currency.

Meanwhile, oil prices held near multi-year lows on Thursday amid concerns over the global supply glut and the subdued demand outlook. The Shanghai Composite Index dropped 3.4 percent to 3,664.29 on heavy selling of energy and property companies. The central bank has sought to keep liquidity high through long-term credit while injecting funds into the markets.

But the road to rate hike remains bumpy.

“The Fed is backing off from September”, John Herrmann, director of U.S. rate strategy at Mitsubishi UFJ Securities, said in an interview on Bloomberg Television.

“Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range”, the minutes said.

The committee noted that the labour market “had continued to improve, with solid job gains and declining unemployment”. The Fed minutes said that this could lead to a further strengthening of the dollar, which could further hurt U.S. exports and drag oil prices even lower.

Most Fed officials in July “judged that the conditions for policy firming had not yet been achieved”, the minutes showed.

Prices rose to $1,153.70, the highest for a most-active contract since July 15.