September Fed Minutes Show Fed Members Are Paying Attention To Global Volatility; In No Hurry To Raise Rates

fED MINThe U.S. dollar is lower on Friday against a basket of currencies and U.S. stock futures are flat after the release of the September 16-17th  Fed Minutes yesterday revealed that Fed Committee members are in no hurry to begin raising interest rates and would prefer to wait and see how the economy performs in the approaching weeks alongside increased global volatility and a potential negative impact with the growth of U.S. economy.

Many economists were expecting that committee members at U.S. Central Bank would vote to begin raising interest rates at the September Fed meeting with the U.S. job market approaching full employment and the economy bouncing back from a slowdown in the 1st quarter due to cold winter weather that halted economic growth.

First quarter real GDP only expanded 0.6 percent (revised) in the first quarter of 2015 compared to 3.9 percent in the 2nd quarter of 2015.

Fed Chair Janet Yellen has spoken openly in the past about a rate hike likely coming  in 2015 and many market movers have taken her words seriously.

Turbulence in the global markets and concerns about the impact on the U.S. economy were major reasons Fed committee withheld raising interest rates at their September Fed meeting.

“Over the intermeeting period, the concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of U.S. monetary policy” Fed minutes said.

A strong dollar and a decision the China’s Central Bank to devalue the yuan were some of the catalysts that caused Fed committee members to pause before increasing interest rates.

Fed members are paying close attention to global headwinds and the impact of energy and import prices on inflation.

“The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. Inflation is anticipated to remain near its low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate” Fed Minutes said.

Federal Reserve Bank of San Francisco President and CEO John Williams said in a September 28, 2015 speech at U.C.L.A. that the decision to not raise interest rates at the September Fed meeting was a “close call” and explained that if the economy stays on track, he believes that a rate hike is still likely to occur in 2015.

“But all in all, things are looking up, and if they stay on track, I see this as the year we start the process of monetary policy normalization.”

-Johnathan Schweitzer

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