Published: Thu, May 25, 2017
Money | By Armando Alvarado

Dollar slips after cautious Fed minutes

Federal Reserve policymakers agreed they should hold off on raising interest rates until it was clear a recent US economic slowdown was temporary, though most said a hike was coming soon, minutes from their last policy meeting showed on Wednesday. The central bank is charged with both restraining excess inflation and ensuring a healthy labor market.

While the yield curve flattened, Wall Street remained slightly higher and the dollar slipped after minutes from the Fed's May 2-3 meeting indicated it would gradually raise interest rates and reduce its bond reinvestment.

The broad-based S&P 500 rose to an all-time high, with all three major indices moving up markedly after the release of Federal Reserve meeting minutes, following subdued trading during most of the day.

The discussion of the Fed's staff plan for reducing its bond holdings provided the most concrete information so far on how the central bank might proceed.

The gradual process is expected to prevent any surprises in the markets. "The Chinese economy looks set to grow more than six percent, so there's no reason to be that pessimistic either", said Shuji Shirota, head of macro economic strategy group at HSBC in Tokyo.

The Dow Jones Industrial Average was up 74.51 points, or 0.36 percent, to 21,012.42.

Monetary policymakers say they may wait, however, to see if weak growth recorded earlier this year was only temporary, which seems to open the possibility that the next rate increase could be delayed until after June.

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Some members of the Federal Reserve committee believe the global outlook has brightened, according to the minutes. Rupkey noted that the jobless rate is already below the 4.7 percent level that the Fed considers as signaling full employment. The minutes mentioned that some areas of the country were seeing "shortages of workers in selected occupations", language that was not included in the minutes last month.

Almost all policymakers at the May 2-3 meeting also said they favored beginning the wind-down of the USA central bank's massive holdings of Treasury debt and mortgage-backed securities this year. Instead, as securities mature, the Fed will keep the proceeds rather than its current policy of investing in new securities.

According to the minutes, almost all policymakers favored a plan to increase caps or limits on the amount of Treasury and agency securities that would be allowed to run off each month.

At the May meeting, almost all officials "expressed a favourable view" of a staff-presented general approach to shrinking the balance sheet that would involve gradually increasing run-off caps every three months.

"Nearly all policymakers expressed a favorable view of this general approach", the minutes said.

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