Federal Reserve officials have become more concerned about weak growth overseas and the impact of a strengthening U.S. dollar on the domestic economy, according to minutes of the Fed’s September policy meeting released Wednesday.
Officials worried at the Sept. 16-17 policy meeting that disappointing growth in Europe, Japan and China could crimp U.S. exports. Meantime, the stronger currency, by reducing the cost of imported goods and services, could hold U.S. inflation below the Fed’s 2% objective. Fed staff also reduced its projection for medium-run growth in part because of these concerns.
The collective worry is added reason for the Fed to hold short-term interest rates near zero, even as the economy improves.>> Read More
If the Federal Reserve’s post-meeting statements are known for their concision, the minutes of the same meetings stretch to 12 pages. That won’t stop investors leafing (at least digitally) through the latest set when they are released later on Wednesday.
The September 16-17 meeting of the Fed’s Open Market Committee offered a wide – and sometimes contradictory – set of views.
There were the forecasts from individual governors for the Fed’s overnight lending rate, growth and inflation predictions as well as a press conference from chairwoman Janet Yellen.
The minutes will be released at 2pm local time, and here’s what to watch for.
Here is an analysis of the latest jobs data and how it might influence the thinking ofFederal Reserve officials considering the outlook for interest rates.
The U.S. jobless rate, at 5.9% in September, was already where Fed officials recently projected it would be by year end. Moreover payroll employment growth is robust, averaging more than 200,000 per month. That means early interest rate increases next year–before mid-2015–remain on the table. That was not the Fed’s expected path before today.
In addition, the employment report leaves officials with tough decisions about whether to alter their guidance about the interest rate outlook at their policy meeting later this month or wait until they update their economic forecasts in December.
Before today, many Fed officials expected they would start raising their benchmark short-term interest rate from near zero in the middle of next year, and encouraged that view in the markets. The jobs report strengthens the hands of those who want to move before midyear.
“A liftoff date at the end of the first quarter of 2015 would already be well past what is called for by a standard monetary policy rule,” said James Bullard, president of the St. Louis Fed and an early rate hike proponent, said in a presentation Thursday.>> Read More
America’s jobs market rediscovered more momentum than expected in September.
The US created 248,000 jobs last month, the Labor Department said on Friday in its monthly snapshot of the labour market. That compares with 180,000 in August, which was revised higher from 142,000.
The unemployment rate was 5.9 per cent compared with 6.1 per cent in August.
While broader US economic growth has been uneven this year, the improvement in the jobs market has proved more consistent. Excluding September’s tally, monthly jobs growth has averaged 215,000 this year compared with 194,000 in 2013.
The unemployment rate has fallen from 6.6 per cent at the start of the year and the 10 per cent in touched in 2009, when the world’s largest economy was engulfed by its worst recession since the 1930s.
Whether the scale of the improvement is enough to justify the first rise in official interest rates since the crisis is a matter of intensifying debate at the US Federal Reserve.
September’s meeting of the Fed’s rate setters revealed an emerging – though still small – split between a majority who favour keeping interest rates low and those who fear the central bank is putting financial stability at risk unless it begins to tighten.
Charles Evans, the president of the Chicago Federal Reserve and an influential observer of the US labour market, on Monday urged Federal Reserve officials to err on the side of caution as they debate when to raise interest rates.
As the Fed prepares to wrap up its bond-buying programme next month, there are signs of an emerging split at the central bank’s top table over when to raise interest rates.
Two Fed governors, Charles Plosser and Richard Fisher, this month dissented from the Fed’s overall pledge that it would keep interest rates low for a “considerable time” after it finishes buying bonds.
In a speech to the National Association for Business Economics in Chicago, Mr Evans insisted:>> Read More
Had RBI not brought in the Urjit Patel committee report with its CPI-based inflation targeting approach, there is little doubt interest rates would have been cut by now. At 3.46%, WPI inflation is at a 5-year low and, even if you go by the CPI which is now in vogue, core inflation hasn’t been lower since January 2012—so it’s not just the food prices we’re talking about. The reasons for the slowing in inflation are equally obvious. While economic growth continues to remain anaemic for the third year in a row—that’s why, with no takers for loans, SBI has just cut its deposit rates, and other banks will follow—the game changers as far as inflation is concerned is the dampening of the MSP-rate hikes and the government finally deciding to start offloading FCI’s huge stock of grain. Along with an overall softening of global commodity prices—partly the result of the US cutting back on liquidity which was flowing into, among others, commodity markets—this has resulted in CPI cereals inflation falling to 7.4% in August 2014 versus an average of 14.9% in 2013 and 8.9% in the first 8 months of 2014; CPI fuel and light has fallen to 4.15% in August versus 7.9% in 2013 and 5.4% in 2014. It also helps that, as the Budget reinforced, the days of unbridled government spending, especially in rural areas, are also over for now.
Given this, it is difficult to see why RBI Governor Raghuram Rajan is so hawkish on inflation—a few days ago, he said rates could not be cut till there was more evidence on inflation slowing. While the likelihood of US interest rates rising raises fears that FII debt flows—at $18.7 billion till September, these are the highest in a decade—could start flowing out, more so if the rupee collapses, this has to be juxtaposed against higher FII equity flows as well as increased FDI prospects. At $14.1 billion till September, FII equity is likely to be the second- or third-highest in the last decade. And if even a fraction of the promised Japanese/Chinese promised investment comes in, this is a significant addition to FDI flows which averaged $28 billion per year over the last five years.>> Read More
The global economy faces a growing risk from big financial market bets that could quickly unravel if investors get spooked by geopolitical tensions or a shift in US interest rate policy, the International Monetary Fund has said.
The IMF said in a report it still expects economic growth to pick up in the second half of 2014 after a rough start to the year.
But it also warned that financial market indicators suggested investor bets funded with borrowed money looked “excessive” and that markets could quickly deflate if there were surprises in US monetary policy or the conflicts in Ukraine and the Middle East.
As the IMF put it in its technical language: “New downside risks associated with geopolitical tensions and increasing risk taking are arising.”
India’s economy is on the way to recovery but the road ahead may be bumpy, Reserve Bank of India Gov. Raghuram Rajan said Monday.
Mr. Rajan said strong export data and accelerating car sale growth suggest the economy could be gaining momentum even though investment data remain disappointing.
“Recovery is still uneven,” Mr. Rajan told an audience of bankers gathered at a conference in Mumbai. “We need investment to pick up.”
Mr. Rajan’s words came only a few days after data showed industrial production in Asia’s third-largest economy expanded less than expected in July, tempering recent optimism about an upswing in the economy.
Inflation data released Friday showed consumer prices rose 7.8% in August from a year earlier compared with a 7.96% inflation rate in July. It is the latest proof of a slowdown inflation, which may allow the RBI to cut interest rates.>> Read More