The Federal Reserve would consider raising interest rates even if inflation remains at its current level, the minutes from the December meeting of the Federal Open Market Committee (FOMC) reveal.
The members of the Fed’s policy are locked in what’s become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008. The current market consensus is that the first hike will happen sometime in the middle of 2015.
In December, the FOMC said in its policy statement that it can be “patient in beginning to normalize the stance of monetary policy”, adding that this new language is consistent with its previous position that the federal fund rate will remain unchanged for a “considerable time” following the end of its asset purchase programme (QE3) in October.
The minutes from that meeting, which were released this afternoon, show that most participants thought the reference to patience indicated that the FOMC Committee was unlikely to begin the normalization process for at least the next couple of meetings.
However, some FOMC voting member regarded the revised language as risking an unwarranted concentration of market expectations for the timing of the initial increase in the federal funds rate target on a narrow range of dates around mid-2015 and might not adequately allow for changing economic conditions.
As it relates to the US economy, the FOMC member noted that labour market conditions are improving, with solid job gains and a lower unemployment rate. They expect that, over the medium-term, real economic activity would increase at a pace sufficient to lead to further improvements in labour market indicators.
But the Fed did express some concerns that slower economic growth abroad could negatively affect the US economy, principally through lower net exports.
“But the net effect of lower oil prices on US economic activity was anticipated to be positive,” the minutes said.
Nevertheless, the sharp drop in the energy prices may distort the Fed’s inflation outlook. This might make it difficult for consumer prices to climb towards its two percent target, up from the current rate of about 1.4 percent.
“With lower energy prices and the stronger dollar likely to keep inflation below target for some time, it was noted that the committee might begin normalization at a time when core inflation was near current levels,” the Fed minutes said.
“Although in that circumstance participants would want to be reasonably confident that inflation will move back toward two percent over time,” they added.
In terms of market reaction, gold futures posted modest gains following the release of the minutes, climbing by about $5 to $1,215.1 per ounce.
As for other commodities, light sweet crude jumped by about 50 cents to $48.61 per barrel in the Fed’s wake, while the most-actively traded Comex copper contract inched toward’s the interday high at $2.7615.
In the wider-markets, stocks continued to rebound with the Dow Jones industrial average and S&P 500 up 1.23 percent and 1.22 percent respectively, while the dollar was 0.45 percent stronger at 1.1837 against the euro.
The post Gold, equities rise after Fed minutes; oil stabilises appeared first on The Bullion Desk.
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