Photo by Federal Reserves

JAKARTA (TheInsiderStories) –  Policymakers at the U.S Federal Reserve were split on the prospect of inflation, but largely in agreement on the likelihood of a third rate hike later this year, according to minutes of the U.S. central bank’s September meeting, released on Wednesday (11/10).

‘Consistent with the expectation that a gradual rise in the Federal funds rate would be appropriate, many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged,’ according to the Minutes.

Fed Chair Janet Yellen has repeatedly acknowledged since the meeting that there is rising uncertainty about the path of inflation, which has been mysteriously diverging from the Fed’s 2 per cent target rate over the past few months.

However, Yellen and a number of other key policymakers have made plain that they expect to continue to gradually raise interest rates, given the apparent overall strength of the economy and continued tightening of the labor market.

The call to keep the faith in gradual rate rises was echoed on Wednesday by two Fed policymakers. Kansas City Fed President Esther George urged her colleagues to be less fixated on the 2 per cent inflation target and argued further rate hikes are necessary to ward off unwanted inflationary pressures.

Her attitude is that low inflation is no problem in an economy that is growing and boasting full employment. Likewise, the San Francisco Fed’s John Williams opined that low unemployment also made him conclude inflation was likely to shift back toward the Fed’s target.

Several Fed officials noted in the minutes that the interpretation of inflation readings over the next few months would likely be complicated by a temporary increase in energy costs and prices of other items affected by hurricane-related disruptions. Meanwhile, a report on US job openings showed a fall to 6.08 million in August from a prior 6.14 million.

Minutes from the Federal Open Market Committee meeting in September showed that a December interest rate hike is likely. The central bank has increased interest rates four times in its tightening cycle which began in late 2015. The Fed currently predicts one more rate rise this year and three in 2018.

All three main U.S. stock benchmarks closed at record highs on Wednesday, after the Federal Reserve released a summary from its previous meeting that showed many policymakers arguing in favor of an additional rate increase this year.

The Dow Jones Industrial Average added 30 points, or 0.13 percent to 22,861, the S&P 500 gained three points, or 0.12 percent to 2,554 and the Nasdaq Composite added 14 points, or 0.21 percent to 6,601.

In Asia, most shares gained on Thursday in morning sessions, after Wall Street closed at record levels, following the latest minutes from the Fed.

Japan’s Nikkei 225 rose 0.45 percent. Across the Korean Strait, the Kospi rose 0.11 percent, while down under the S&P/ASX 200 rose 0.13 percent. Greater China markets, however, bucked the trend to edge downward. Hong Kong’s Hang Seng Index was off 0.02 percent. On the mainland, the Shanghai Composite lost 0.22 percent.

Following other Asian Markets, the Jakarta Composite Index rose 31.5 points (0.536 per cent) to 5,914 in the break-session today. The U.S dollar also fell 31 points (0.23 per cent) against the Indonesian Rupiah to 13,499, according to Bloomberg spot exchange rate. US dollar weakness is likely to persist, as next December’s FMOC meeting will bring uncertainty in coming weeks and impose some degree of volatility.

Writing by Yosi Winosa, Email: yosi.winosa@theinsiderstories.com

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