Fed minutes: Strong economy supports rate hikes

18 October, 2018, 12:50 | Author: Regina Silva

The rand retreated early on Thursday after minutes from the US Federal Reserve's September meeting struck a hawkish tone, draining some of the enthusiasm for emerging currencies that lifted the local unit to a two-week peak.

Their assessment is likely to anger President Trump, who over the past week has repeatedly attacked the Fed for raising rates last month, saying that it is acting too quickly to constrain a booming American economy.

The Fed has raised interest rates three times this year as it seeks to prevent a vibrant economy from overheating. But others argued against stronger tightening of monetary policy without "clear signs" the economy is running hot.

Oil prices fell on Wednesday, with USA futures settling below $70 a barrel for the first time in a month, after US crude stockpiles rose 6.5 million barrels, nearly triple what analysts had forecast, while exports dropped. U.S. Treasury yields were little changed.

Trump said he doesn't speak with Chairman Jerome Powell because of the Fed's political independence but said.

Though the minutes did not refer to any of Trump's criticism, its message of further rate increases suggests that policymakers are not fazed by it.

President Trump has recently renewed criticism of the Fed and its interest rate hikes.

This would move United States interest rates slightly above what policymakers say is "neutral" - that is, neither slowing nor speeding the economy - but some participants said the Fed may need to go even further than that.

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Compared to the minutes of Fed's previous meeting held in August, the September minutes appeared to show less discussion around the prospects that a recession might be lurking around the corner.

The central bank continues to have a bullish outlook on the US economy, and praised "robust increases" in household income, the minutes show.

"A few participants expected that policy would need to become modestly restrictive for a time", according to the minutes.

Still, policymakers noted that the relative weakness of the worldwide economy could create "potential for further strengthening of the US dollar", a factor that could weigh on USA exports.

Raising rates is the Fed's way of lowering the risk of runaway inflation, which happens when competition for labor and a shortage of goods in a fast-growing economy leads to big increases in wages and prices.

While the Fed's policy outlook suggested the US economy was humming along nicely, the spectre of rising dollar yields, which along with trade tensions were at the centre of last week's global equities rout, dented appetite for risk.

They also noted that some businesses said they were investing less in the energy sector due to the imposition of import tariffs on steel and aluminum, part of an array of trade policy conflicts the Trump administration has pursued.

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