Fed officials: Stronger economy boosts chance for rate hikes

Andrew Cummings
February 22, 2018

Federal Reserve officials "anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further", the minutes of their january 30-31 meeting released in Washington on Wednesday showed.

However, many Fed officials downplayed the impact from the market turbulence, saying they would stick to their forecast of stronger growth outlook and gradual rate hike pace.

Investors have all but priced in another rate increase at the central bank's next meeting, on March 20-21, and Fed officials have signaled they expect to deliver two more rate hikes before the year is out.

Looking to the market's response following the release of the statement, both the Dollar and United States equities offered limited engagement though the currency initially slipped (and then recovered) and stocks advanced.

USA stocks have advanced, with the Dow and S&P 500 on track for their seventh gain in eight sessions, buoyed by stocks in economically sensitive areas such as industrials and technology.

The final meeting headed by former chair Janet Yellen was hawkish by eliminating all the transitory factors and with a higher inflation outlook.

But that turned out to be a knee-jerk reaction as they have fallen significantly since then - after USA 10-year treasury bonds lifted to a four-year high of 2.952 per cent.

The dollar was up by 0.2 percent to 107.54 against the Japanese yen, after bottoming out at 105.55 last week. The Treasury Department has issued more debt in anticipation of a higher deficit from last year's major tax overhaul and a budget deal that will increase federal spending over the next two years.

Sticking closely to a view he laid out earlier this year, Harker said he expects the USA economy to grow 2.5 percent this year before slowing to 2-percent growth next year and to below 2 percent in 2020.

The S&P 500 Index ended the day down 0.6 percent after being up as much as 1.2 percent earlier.

The Fed left rates unchanged at the January meeting, but investors will look for its opinion on inflation and interest rates, especially after strong economic data raised concerns of an overheating economy and triggered the recent selloff.

The Toronto Stock Exchange's S&P/TSX composite index closed up 84.57 points, or 0.55 per cent, higher at 15,524.01, its strongest close since February 2.

The euro was little changed at $1.2279.

The S&P 500 fell -0.55% as energy stocks weighed.

WELLINGTON: The S&P/NZX 50 Index rose 1.26 per cent, to 8,200.27. While the German DAX Index edged down by 0.4%, the French CAC 40 Index rose by 0.2% and the UK's FTSE Index climbed by 0.5%.

Gold rose 90 cents to $1,332.10 an ounce. Brent crude, used to price worldwide oils, rose 17 cents to close at $65.42 per barrel in London.

Australian stocks were almost flat and South Korea's KOSPI gained 0.55 percent.

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