Fed officials split in July over inflation worries

Fed officials split in July over inflation worries

Many senior officials saw a greater likelihood that "inflation might remain below 2% for longer than they now expected".

But Yellen's colleagues said they were anxious about advancing with a planned interest rate hikes - which could lower inflation - until prices rose slightly on their own.

The policy debate was revealed in minutes released on Wednesday of the Fed's July 25 and July 26 meeting.

The Federal Open Market Committee (FOMC) released its minutes from its meeting in July on Wednesday, which detailed the Fed's outlook on the state of all facets of the economy since its meeting in June, when it made a decision to raise interest rates.

Some members "observed that the Committee could afford to be patient under current circumstances", the minutes said, "and argued against additional adjustments until incoming information confirmed that the recent low readings on inflation were not likely to persist". Focus will remain on the discussions of the timing of quantitative tightening (we still expect tightening to be announced in September) and any comments on how concerned the Fed is about the low inflation which it now describes as 'below 2%'.

Inflation has remained below 2 per cent in the USA for more than five years.

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That would put Fed officials on target for another small increase in their benchmark short-term interest rate before the end of the year.

The minutes also showed that several officials pushed for an announcement last month that the Fed was ready to start reducing its massive bond holdings, a move that would likely mean slightly higher rates on mortgages and some other loans. With such strong wage dynamics, and inflation not worrisomely low, we stick to our view that the Fed will hike rates in December, with the consequent strengthening of the USA dollar.

The S&P 500 Index rose 0.1% to close at 2,468.11, where it was little changed for the day. "The increasing odds of the U.S. interest rate hike could push the gold price below the $1,250 level and this could happen if the upcoming [Fed] minutes deliver some hawkish tone".

Other high-trading currencies, such as the Australian dollar, lifted against its American counterpart as a result of an upbeat Australian employment data, and with Fed's recent policy meeting weighing down on the greenback.

"As expected, the minutes of the latest meeting of the U.S. Federal Reserve gave no indication as to how the Fed might proceed in future".

"It is very hard to ignore much higher USA yields relative to G7 peers for any sustained period and the market has got itself rather too short on the dollar", said Marc Ostwald, global strategist at ADM ISI in London.