Wall St set to open higher after Fed minutes

Before these meeting minutes, traders weren't sure what to expect from the Fed's plan to shrink its huge pile of debt. "Still, the minutes confirmed the Fed's intent to continue normalizing monetary policy."He added, "w$3 ith investors still expecting the Fed to hike at its next meeting, some shorts likely took the occasion to cover their trades by buying gold, essentially a "sell the news" dynamic".

In economic news, existing home sales dropped 2.3% in April, below expectations, MarketWatch reported.

Oil stocks were down following reports the Trump administration could slash United States strategic reserves, with ExxonMobil falling 0.4 per cent, Royal Dutch Shell losing 0.2 per cent and Chevron down less than 0.1 per cent. "The prospect of a third U.S rate increase by the Federal Reserve in 2017 still remains under threat, especially when considering how Trump uncertainty still remains a major theme". Today unemployment is very low at 4.4%.

The minutes did not spell out what officials meant by "soon".

Fed policymakers agreed they should hold off on raising interest rates until they see evidence that a recent economic slowdown was transitory.

Yet a few participants cautioned that the Fed could raise interest rates more gradually than previous forecasts had suggested, noting that the economy has showed surprising weakness in recent months.

The Fed has more than $4 trillion in Treasury debt and mortgage-backed securities, largely accumulated as part of the effort to stimulate the economy in the wake of the 2007-2009 recession.

The Fed raised rates for the first time in December 2015 and has followed with two more modest increases, in December a year ago and then in March.

"Seeing U.S. interest rates as too low, the move to shift money to U.S. and Japanese stocks is catching on", says Shigeki Sakaki of Nomura Asset Management.

The discussion of the Fed's staff plan for reducing its bond holdings provided the most concrete information so far on how the central bank might proceed.

"The market likely expected the Fed to leave the option of a quicker than now anticipated reduction of the balance sheet open, but it is clear the Fed wants the reduction of the balance sheet to be behind the scenes and systematic after initially announced", said Jay Morelock, an economist at FTN Financial, in a note.

According to the minutes, almost all policymakers favored a plan to increase caps or limits on the amount of Treasury and agency securities that would be allowed to run off each month.

"There are still plenty of questions to answer on balance sheet normalization - not least exactly how big the Fed wants its balance sheet to be in the long term", Ashworth said.

  • Zachary Reyes