Fed officials still cautious in June about rate hikes

Still, support for gold and silver today reflects last night’s Fed minutes, which failed to provide a clearer picture on when the normalisation of U.S. monetary policy might begin.

“There are concerns that the selloff in China’s stock markets will start to impact Chinese economic growth, and therefore global growth”, said Anthony Cronin, a Treasury bond trader at Societe Generale SA. The June FOMC meeting’s minutes did contain something unique: a potential change to how the Fed Funds rate is calculated. But: “The Fed will be looking domestically”.

The Fed has signaled its first rate hike in nine years would likely come this year.

“China is an immediate problem, and that is a bigger deal that the market has to contend with”, said Guy Haselmann, director of capital-markets strategy with Bank of Nova Scotia in New York.

However, the Fed’s latest announcement now suggests that its prior hint at a possible rate increase was premature.

“On both fronts, underlying conditions have deteriorated markedly since the Fed’s mid-June meeting, so the minutes may be largely irrelevant at this point”, he said.

What the Fed is trying to avoid when it eventually hikes rates is to roil already jittery markets.

But seven of the 17 policymakers indicated they expect a later increase, with many economists concluding that Fed Chair Janet Yellen was among them. The rest of Evans’ colleagues are debating whether one rate hike or two would be more appropriate, given the improvement in the labor market and their expectation that inflation will soon bottom and beginning rising back to the Fed’s 2-percent target.

The global slowdown further complicates the Fed’s promised agenda or rate normalization.

“The [Fed’s committee] recognizes Greece as a risk to the forecast, but ultimately they are thinking, ‘How does this affect the U.S. economy?'” said Luke Tilley, chief economist, Wilmington Trust Investment Advisors. (The central bank has probably never used the phrase, “reasons to be cheerful.”) Some members of the FOMC apparently pointed to the risk that the weaker-than-anticipated rise in US economic activity over the first half of the year could reflect factors that will continue to hamper sales and production, and so economic activity might not have sufficient momentum going forward.

Financial markets are awaiting a speech Yellen is scheduled to give Friday for an updated assessment on her views of the economy. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Traders are also awaiting news on Greece, after European Central Bank President Mario Draghi voiced doubts about the chances of rescuing the country from bankruptcy. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.