Asian shares slide; dollar loses edge on Fed minutes

Inflation has remained below the Fed’s 2 percent target for annual price increases for more than three years. The prospect of the Fed raising rates has boosted the dollar, further undercutting inflation through lower import prices. A line from the report stating: “several participants noted that a material slow-down in Chinese economic activity could pose risks to the U.S. economic outlook” caused particular consternation.

The dollar was down 0.2 percent against a basket of leading currencies, extending losses made after the minutes release from the July 28-29 Fed meeting. The relationship seems to have weakened over the years, and some argue Yellen should seek more proof about inflation – or risk a potential policy mistake. Yet many economists said the minutes of the July meeting did little to clarify the Fed’s intentions. They felt assured that the plunge in China’s stock market in the weeks before their meeting had had only a limited effect on China’s growth prospects. Gold benefited last week from uncertainty posed by China’s surprise devaluation of its yuan currency.

On China, Fed officials did not appear to worry that the falling Chinese stock market would seriously imperil growth in the world’s second-largest economy. These officials, according to the minutes, expressed concerns that there were still many discouraged workers who have stopped looking for a job and still-high levels of workers being forced to work part time compared with before the Great Recession.

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.

“There is a big component of inflation that is just going to be idiosyncratic and unexplained”, leaving policymakers to take their best guess about it, said former Fed research director David Stockton.

NEW YORK (AP) – Stocks remained lower Wednesday despite signs from the Federal Reserve that an interest rate hike in September was still being debated.

U.S. gold for December delivery was up 1 percent to$1,139.40 an ounce. That would be a boon for U.S. motorists.

Congress returns from its August recess next month with a long to-do list, including passing a budget by October. 1 for the start of the new budget year and raising the nation’s borrowing limit to avoid a default on the national debt.

“But you’d have to think that because of the rate hike the dollar would rise from here, so it’s hard to get too excited”. “Unfortunately, if those assumptions are wrong, then by next summer the funds rate could be at 1 to 1-1/2 percent before it’s clear they’ve made a mistake”.

ANALYST VIEW: “The Fed appears to be heading towards a rate hike and this against the backdrop of deflationary forces globally is creating intense uncertainty”, Shane Oliver, head of investment and chief economist at AMP Capital, said in a commentary. But she said the list of concerns is long enough that it might give Fed officials reason to delay.

“September it will be-barring any bunker busters”, they concluded.