Released yesterday, minutes of the last meeting of the Federal Open Market Committee (FOMC), from May 2–3, 2017, showed that the Fed is awaiting more signs that recent weakness in U.S. economic activity is only temporary before tightening its monetary policy further. However, most FOMC members judged that it might “soon be appropriate” to increase the Fed Funds rate once again.
Wall Street ended higher yesterday, with the Dow Jones up 0.35% at 21,011.01 points, the S&P500 up 0.24% at 2,404.31 points, and the Nasdaq Composite up 0.40% at 6,163.02 points.
Traders are still analysing the Fed minutes, but attention is already shifting to today’s OPEC meeting in Vienna, where members are expected to agree to extend production cuts. Oil ended yesterday’s trading session slightly lower, with West Texas Intermediate (WTI) down 11 cents at USD 51.36 a barrel and Brent Crude down 0.21% at USD 53.96. Looking at the bigger picture, Oil maintained its recent rally, reaching its highest level in more than a month, after Alexander Novak, Russia’s Energy Minister, announced that his country would discuss a 3-month extension to the existing 9-month agreement.
The U.S. Dollar continued to fall after the FOMC minutes. Fed officials remain concerned about the direction of inflation, which hasn’t picked up as they had hoped. This is despite an improving employment situation, with the total number of nonfarm jobs rising by 211,000 in April 2017, and the unemployment rate dropping to 4.4% - the lowest level since the financial crisis of 2007 - and well below the 4.8% unemployment rate Fed members view as the maximum use of labour resources.
Consumer prices for all items rose 2.2% over the 12 months ending in April, but for all items apart from food and energy, they rose just 1.9% over the last year, compared with 2.3% in January. Fed officials link the unemployment rate to inflation, since more people with regular salaries results in more disposable income circulating in the economy.
There are different reasons for rising prices, one of which is known as demand-pull inflation. Investopedia defines it as follows: “Demand-pull inflation results from strong consumer demand. Many individuals purchasing the same good will cause the price to increase, and when such an event happens to a whole economy for all types of goods, it is called demand-pull inflation.”
Inflation figures are key criteria for the Fed to consider when it sets interest rates. Its objective is an inflation rate of 2%, but according to Bloomberg, the Fed has only achieved this target once since 2012.
Another main issue discussed at the last FOMC meeting was reducing the Fed’s balance sheet. Since 2008, it had been making large-scale purchases of U.S. bonds. This programme, called quantitative easing, enabled the Fed to keep interest rates at record-low levels, to encourage the borrowing that would trigger growth. However, in October 2014 the Fed decided to end the programme, after its balance sheet had reached USD 4.5 trillion.
Fed officials are now looking to reduce this figure with “a system where it will announce cap limits on how much it will allow to roll off each month without reinvesting. Any amount it receives in repayments that exceeds the cap limit will be reinvested”, according to CNBC.
Wall Street ended higher yesterday, with the Dow Jones up 0.35% at 21,011.01 points, the S&P500 up 0.24% at 2,404.31 points, and the Nasdaq Composite up 0.40% at 6,163.02 points.
Traders are still analysing the Fed minutes, but attention is already shifting to today’s OPEC meeting in Vienna, where members are expected to agree to extend production cuts. Oil ended yesterday’s trading session slightly lower, with West Texas Intermediate (WTI) down 11 cents at USD 51.36 a barrel and Brent Crude down 0.21% at USD 53.96. Looking at the bigger picture, Oil maintained its recent rally, reaching its highest level in more than a month, after Alexander Novak, Russia’s Energy Minister, announced that his country would discuss a 3-month extension to the existing 9-month agreement.
The U.S. Dollar continued to fall after the FOMC minutes. Fed officials remain concerned about the direction of inflation, which hasn’t picked up as they had hoped. This is despite an improving employment situation, with the total number of nonfarm jobs rising by 211,000 in April 2017, and the unemployment rate dropping to 4.4% - the lowest level since the financial crisis of 2007 - and well below the 4.8% unemployment rate Fed members view as the maximum use of labour resources.
Consumer prices for all items rose 2.2% over the 12 months ending in April, but for all items apart from food and energy, they rose just 1.9% over the last year, compared with 2.3% in January. Fed officials link the unemployment rate to inflation, since more people with regular salaries results in more disposable income circulating in the economy.
There are different reasons for rising prices, one of which is known as demand-pull inflation. Investopedia defines it as follows: “Demand-pull inflation results from strong consumer demand. Many individuals purchasing the same good will cause the price to increase, and when such an event happens to a whole economy for all types of goods, it is called demand-pull inflation.”
Inflation figures are key criteria for the Fed to consider when it sets interest rates. Its objective is an inflation rate of 2%, but according to Bloomberg, the Fed has only achieved this target once since 2012.
Another main issue discussed at the last FOMC meeting was reducing the Fed’s balance sheet. Since 2008, it had been making large-scale purchases of U.S. bonds. This programme, called quantitative easing, enabled the Fed to keep interest rates at record-low levels, to encourage the borrowing that would trigger growth. However, in October 2014 the Fed decided to end the programme, after its balance sheet had reached USD 4.5 trillion.
Fed officials are now looking to reduce this figure with “a system where it will announce cap limits on how much it will allow to roll off each month without reinvesting. Any amount it receives in repayments that exceeds the cap limit will be reinvested”, according to CNBC.
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