Rate Hike Coming Soon? 5 Key Takeaways from the Latest Fed Minutes

SINGAPORE, Feb 23 Asian stocks steadied on Thursday after earlier losses, aided by a weaker dollar as markets studied Federal Reserve meeting minutes that indicated both readiness and caution over raising interest rates.

Minutes from the Fed's January meeting, out later Wednesday, should offer more clues into how policymakers are feeling.

The documents also showed the Fed discussing when to start unwinding its $4.5 trillion balance sheet of mortgage-backed and Treasury securities, which it acquired in an effort to ease lending and stimulate the economy after the financial crisis. These same members also judged that the Fed would have ample time to respond if inflationary pressures emerged. The central bank kept its policy interest rate unchanged for an eighth month as improvements in exports and inflation offset concerns over a political scandal that's hurt domestic confidence. But the discussion in the minutes might increase the possibility of a rate increase as soon as March. The dollar rose as Federal Reserve officials encouraged investors to contemplate a March rate hike.

The minutes were released with the customary three week delay.

"Participants again emphasised their considerable uncertainty about the prospects for changes in fiscal and other government policies as well as about the timing and magnitude of the net effects of such changes on economic policies".

Fed chair Janet Yellen had said recently that it would be unwise to wait too long to raise interest rates, indicating an increase in the summer.

This group argued against "adjusting monetary policy in anticipation of policy proposals that might not be enacted or that, if enacted, might turn out to have different consequences for economic activity and inflation than now anticipated".

According to minutes released Wednesday from the central bank's last policy meeting, some officials were of the view that it might be appropriate to move "potentially at an upcoming meeting", the Wall Street Journal reports.

June fed funds futures suggested traders placed a 71 percent chance of rates rising to at least 0.75-1.00 percent at the Fed's June 13-14 meeting, compared with a perceived 73 percent chance late on Tuesday.

Last month, the Fed chose to keep rates unchanged so as to allow the labor market to strengthen further and has raised its short-term interest-rate target only twice since the Great Recession.

The federal funds rate is the overnight rate on loans between banks, and it is effectively the single most influential interest rate in the US economy, as it has widespread affects on domestic monetary and financial conditions. The fed rate bears on employment, economic growth, and inflation. Reducing the Fed's portfolio could set off some economic tremors by pushing up long-term rates. His stimulus package includes tax cuts for businesses and individiuals, increased infrastructure spending and a roll back of regulations in such areas as banking.

While voting to keep rates unchanged now, the minutes also showed a level of uncertainty at the Fed amid lack of clarity on the new economic policy of US President Donald Trump. Further dampened expectations of an interest rate hike next month were signaled by a drop in U.S. bond yields and a slowdown in the U.S. Dollar's upside momentum.

  • Zachary Reyes