Fed Officials Tempered Economy Optimism With Greece Concern
8 July 2015, 22:36
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Fed Officials Tempered Economy Optimism With Greece Concern
Federal Reserve officials in June saw the economy moving toward conditions that would support an interest-rate increase, while also expressing concern about weak consumer spending and risks from China and Greece.
Members of the Federal Open Market Committee “saw economic conditions as continuing to approach those consistent with warranting a start” to interest-rate increases at some point, according to minutes of June 16-17 meeting released Wednesday in Washington. All members but one “indicated that they would need to see more evidence that economic growth was sufficiently strong.”
Stocks and Treasury yields extended declines as the minutes added to concern that turbulence overseas poses risks for the U.S. expansion. Fed officials considering the timing of the first rate increase since 2006 must weigh a domestic economy that has shown improvement since their last meeting against deepening woes in China and the European Union.
“The minutes portrayed a Fed that was cautious and wanted to see more evidence before it hiked interest rates,” said Paul Eitelman, investment strategist for North America at Russell Investments in Seattle. “Some of their key concerns were the U.S. consumer, but also events abroad.”
Fed officials in June forecast they would raise rates twice this year, while lowering their outlook for subsequent increases. They have said they will let the latest data on the U.S. economy guide their decision on when to tighten.
Emerging Markets
The minutes showed several Fed officials at the meeting “mentioned their uncertainty about whether Greece and its official creditors would reach an agreement and about the likely pace of economic growth abroad, particularly China and other emerging market economies.”
Separately, Fed Bank of San Francisco President John Williams said Wednesday he still expects the Fed to raise interest rates this year, playing down international risks to a U.S. economy he said remains on a “solid trajectory.”
The Standard & Poor’s 500 Index was down 1.5 percent to 2,050.23 at 3:21 p.m. in New York. The yield on the 10-year Treasury note fell six basis points, or 0.06 percentage point, 2.20 percent.
Many FOMC members expected the economy to be near full employment by year-end if growth progressed as they expected. Officials in June expected the unemployment rate to average 5.25 percent in the final three months of the year.
Consumer Caution
The minutes also showed officials were cautious about the economic outlook. Among their concerns were lingering consumer caution, and drags on investment and exports resulting from lower energy prices and a stronger dollar.
Inflation continues to linger below the central bank’s 2 percent goal, and global turbulence is posing new risks.
Investors will get fresh readings on the Fed’s views of the economy when Yellen speaks on Friday and delivers her semi-annual testimony to Congress next week.
Treasury yields have declined as investors sought the safety of U.S. debt. Yields on the U.S. 10-year note are down from 2.42 percent July 1.
The Shanghai Composite Index sank 5.9 percent on Wednesday, extending declines from its June 12 peak to 32 percent. Economists forecast 6.9 percent growth in China this year, the slowest in a quarter century.
Financial turbulence in China, the world’s No. 2 economy, has pushed down prices of commodities, including oil, which has given up its gains for this year. This week, a gauge of six industrial metals from aluminum to zinc fell to the lowest since July 2009.
Materials Prices
Fed officials are keeping an eye on declines in materials prices for signals of slowing global growth and a more prolonged period of low inflation, said Laura Rosner, U.S. economist for BNP Paribas in New York. Fed officials have missed their 2 percent inflation target for more than three years.
“They are watching this very carefully,” she said before the minutes were released, noting that BNP now expects just one Fed rate increase this year, in December, down from a previous forecast of two increases.
The Fed has held its benchmark interest rate near zero since December 2008. While the median forecast for the rate this year was unchanged in June, seven of 17 members of the FOMC now project either one rate increase or none in 2015, up from just three in March.
FOMC participants hadn’t seen the June jobs report at the time of their meeting. While job creation advanced, with the economy gaining 223,000 positions, wages stagnated and the labor force shrank.
Between now and Sept. 16-17, when the next FOMC meeting followed by a press conference is scheduled, Yellen and the committee will see two more monthly jobs reports and several fresh readings on inflation, housing and retail sales.
Fed officials also meet July 28-29. There are no press conferences or forecast updates scheduled for that meeting. https://www.mql5.com/en/signals/111434
Federal Reserve officials in June saw the economy moving toward conditions that would support an interest-rate increase, while also expressing concern about weak consumer spending and risks from China and Greece.
Members of the Federal Open Market Committee “saw economic conditions as continuing to approach those consistent with warranting a start” to interest-rate increases at some point, according to minutes of June 16-17 meeting released Wednesday in Washington. All members but one “indicated that they would need to see more evidence that economic growth was sufficiently strong.”
Stocks and Treasury yields extended declines as the minutes added to concern that turbulence overseas poses risks for the U.S. expansion. Fed officials considering the timing of the first rate increase since 2006 must weigh a domestic economy that has shown improvement since their last meeting against deepening woes in China and the European Union.
“The minutes portrayed a Fed that was cautious and wanted to see more evidence before it hiked interest rates,” said Paul Eitelman, investment strategist for North America at Russell Investments in Seattle. “Some of their key concerns were the U.S. consumer, but also events abroad.”
Fed officials in June forecast they would raise rates twice this year, while lowering their outlook for subsequent increases. They have said they will let the latest data on the U.S. economy guide their decision on when to tighten.
Emerging Markets
The minutes showed several Fed officials at the meeting “mentioned their uncertainty about whether Greece and its official creditors would reach an agreement and about the likely pace of economic growth abroad, particularly China and other emerging market economies.”
Separately, Fed Bank of San Francisco President John Williams said Wednesday he still expects the Fed to raise interest rates this year, playing down international risks to a U.S. economy he said remains on a “solid trajectory.”
The Standard & Poor’s 500 Index was down 1.5 percent to 2,050.23 at 3:21 p.m. in New York. The yield on the 10-year Treasury note fell six basis points, or 0.06 percentage point, 2.20 percent.
Many FOMC members expected the economy to be near full employment by year-end if growth progressed as they expected. Officials in June expected the unemployment rate to average 5.25 percent in the final three months of the year.
Consumer Caution
The minutes also showed officials were cautious about the economic outlook. Among their concerns were lingering consumer caution, and drags on investment and exports resulting from lower energy prices and a stronger dollar.
Inflation continues to linger below the central bank’s 2 percent goal, and global turbulence is posing new risks.
Investors will get fresh readings on the Fed’s views of the economy when Yellen speaks on Friday and delivers her semi-annual testimony to Congress next week.
Treasury yields have declined as investors sought the safety of U.S. debt. Yields on the U.S. 10-year note are down from 2.42 percent July 1.
The Shanghai Composite Index sank 5.9 percent on Wednesday, extending declines from its June 12 peak to 32 percent. Economists forecast 6.9 percent growth in China this year, the slowest in a quarter century.
Financial turbulence in China, the world’s No. 2 economy, has pushed down prices of commodities, including oil, which has given up its gains for this year. This week, a gauge of six industrial metals from aluminum to zinc fell to the lowest since July 2009.
Materials Prices
Fed officials are keeping an eye on declines in materials prices for signals of slowing global growth and a more prolonged period of low inflation, said Laura Rosner, U.S. economist for BNP Paribas in New York. Fed officials have missed their 2 percent inflation target for more than three years.
“They are watching this very carefully,” she said before the minutes were released, noting that BNP now expects just one Fed rate increase this year, in December, down from a previous forecast of two increases.
The Fed has held its benchmark interest rate near zero since December 2008. While the median forecast for the rate this year was unchanged in June, seven of 17 members of the FOMC now project either one rate increase or none in 2015, up from just three in March.
FOMC participants hadn’t seen the June jobs report at the time of their meeting. While job creation advanced, with the economy gaining 223,000 positions, wages stagnated and the labor force shrank.
Between now and Sept. 16-17, when the next FOMC meeting followed by a press conference is scheduled, Yellen and the committee will see two more monthly jobs reports and several fresh readings on inflation, housing and retail sales.
Fed officials also meet July 28-29. There are no press conferences or forecast updates scheduled for that meeting. https://www.mql5.com/en/signals/111434
