Stocks Steady After Release of Fed Minutes

Stocks Steady After Release of Fed Minutes

Stocks Steady After Release of Fed Minutes

The details of the meeting, at which the US central bank voted to raise interest rates, also showed that several officials wanted to announce a start to the process of reducing the Fed's large portfolio of Treasury bonds and mortgage-backed securities by the end of August but others wanted to wait until later in the year.

But a few Fed officials were less comfortable than the prospect of higher rates as implied by the central bank's June projections, saying that too quick a path might prevent a "sustained" return to inflation at that level.

"Fed members went back and forth on the state of the economy, with some agreeing that the drop in the unemployment rate is tinder for eventual inflation while others were less anxious", said Peter Boockvar, chief market analyst with The Lindsey Group, in a client note. The minutes noted, however, that "several participants expressed concern that progress toward the committee's 2 percent longer-run inflation objective might have slowed and that the recent softness in inflation might persist".

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The Fed voted in June to raise short-term rates by a quarter point to a range of 1 to 1.25 percent, the third quarter in a row the bank has lifted rates.

Economists largely expect the Fed to begin shrinking its balance sheet at its September meeting before raising rates again at its final meeting of the year in December. Fed officials viewed weakness in inflation, as well as slow GDP growth recorded in the first quarter, as "transitory" developments.

US stock prices were up slightly at the close of trade while yields on USA government debt dipped. The rate-setting committee is next scheduled to meet to decide interest rate policy on July 25-26. Investors saw a almost 20 percent chance of another rate hike in September, and a 60 percent chance of another rate hike or two by December.

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Financial conditions were also debated at the meeting, with some participants arguing that "increased risk tolerance" among investors could be lifting asset prices.

Other officials believed that making a decision later in the year would give the Fed more time to evaluate the outlook for economic activity and inflation.

Some members were also concerned that there could be a build-up of risks to financial stability. But at some point, increases to the Fed's benchmark interest rate and reductions to its balance sheet will begin to affect bond markets and raise the price of loans for everyday Americans, he said.

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In terms of rates, the Fed funds futures market was pricing in a 55% chance of a hike before the FOMC minutes and pricing in a 56% chance now.

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