Fed official still favors 2015 hike but notes dimmer outlook

At the FOMC September meeting, officials chose to keep the federal funds target rate at zero to 1/4 percent, where it has been for nine years.

However, policymakers made a decision to wait for evidence that the economy had not weakened and that inflation would gradually move back toward the Fed’s 2 percent annual target.

The Atlanta Fed president is a moderate, outside both the “dovish” camp that includes Yellen and others who focus more on unemployment and the “hawkish” camp of policymakers who worry mainly about inflation risks.

A Fed rate hike would reverberate through financial markets globally, depressing foreign currencies and possibly sucking more capital out of emerging markets in particular.

The Federal Reserve will raise interest rates this year provided slower global growth doesn’t undermine forecasts for higher inflation, said two policy makers, while Fed Vice Chair Stanley Fischer said the word from his counterparts overseas was “please do it”.

But since then, the government has released economic data that could give Fed officials further pause.

“In the third quarter, payroll job gains have averaged 167,000 per month”.

Two more job reports may be critical in making the decision.

Gold has recently come under pressure from expectations that the Fed will raise interest rates this year, potentially lifting the opportunity cost of holding non-yielding bullion. Futures traders are pricing in an 10 percent probability of a rate increase at the October meeting and 39 percent increase in December, based on an assumption that the effective funds rate will settle at 0.375 percent after liftoff. Dudley’s comments seemed to favor December for a rate hike. Ultra-low interest rates have boosted utility stocks for the last six years.

Dudley said the economy was “downshifting a little bit”, with strong consumer spending offset by an inventory overhang and weaker exports.

At the same time, Russias bold military actions in the Middle East are just now starting to fuel rising private-sector investment demand for gold as a hedge asset and dollar alternative.

“The concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of USA monetary policy”, the minutes said. “But there are other pieces of data coming in that cast more doubt on what’s happening in the economy”, Lockhart said.

Gold prices had plunged to five-year lows in July as…

Over the week, gold gained more than 1.5%, around US$20 to US$1,154. ECB chief economist Peter Praet also signalled that the central bank is ready to increase quantitative easing as part of preparations for lower liquidity in December.