Fed Minutes Show Confidence Improving on Growth, Price Outlook

Randal Sanchez
February 23, 2018

The minutes also showed voting members, as well as the wider group of policymakers, had upgraded their forecasts for the economic outlook since December.

Almost all FOMC members said they expect inflation to gradually move to the Fed's 2% target, the level it considers healthy for the economy.

Those minutes were from Fed meetings on January 30 and 31.

The local currency slipped by 0.8 per cent to 78.14 U.S. cents.

April gold rose 90 cents to end at USD1,332.10 an ounce.

Investors have all but priced in another rate increase at the central bank's next meeting on March 20-21.

The stock market on Wednesday loved the Federal Reserve's most recently published opinion on the economy and interest rates - for an hour. All major regions saw monthly and annual sales declines last month. The greenback was trading at 107.71 yen, up 0.39 percent, as it inched away from three-year lows.

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"I anticipate further gradual increases in the policy rate will be appropriate to both sustain a healthy labor market and stabilize inflation around our 2 percent objective", Fed Governor Randal Quarles said in remarks prepared for delivery to the Institute for International Monetary Affairs in Tokyo. That two-year yield is the highest since September 2008.

Mr. Quarles said he sees the current shortfall from the Fed's 2% inflation target as largely due to transitory factors that will fade this year. Stocks peaked on January 26 before tumbling at the start of February, and longer-term government bond yields began to climb on the prospects of larger amounts of Treasury issuance.

"The committee's discussion of the growth outlook was bullish, with participants "generally" seeing "substantial underlying economic momentum" and "some" noting increased upside risks to the economic outlook".

Fed officials "cautioned that imbalances in financial markets may begin to emerge as the economy continued to operate above potential". The possibility of higher inflation resulting from the tax cuts and spending increases could even make the Fed likelier to tighten credit.

Participants said some businesses indicated they might use part of their tax savings as a one-time bonus for workers as opposed to a permanent wage increase, according to the minutes. Stocks also rose to new highs in the month before the January meeting, likely giving an additional boost to economic growth, they thought.

The lift in U.S. yields saw the United States dollar index, or DXY, lift to the highest level since February 14, extending its rally from the multi-year low of 88.253 struck last week to over 2%.

Investors are expecting a fairly strong number, which could help the New Zealand dollar, "but it's not really about the kiwi right now, it all about the USA dollar", he said.

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