Federal Reserve remains wary of interest rate hike

Oliver Smith
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The Fed, including chair Janet Yellen (left) fears dropping “patient” from its guidance
GOLD, PLATINUM and emerging currencies were buoyed last night after minutes of January’s Federal Reserve meeting revealed the majority of the committee remain wary of hiking rates too soon and hampering growth in the US economy.

The minutes revealed the group was less unified on its strategy for when it will eventually raise interest rates beyond their current level.

“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalisation had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time,” the minutes said.

They also noted how China’s economic slowdown and tensions in the Middle East and Ukraine posed downside risks to the US economic growth outlook, according to the minutes.

The Fed repeated in January that it would be “patient” in deciding when to raise benchmark borrowing costs from zero and acknowledged a decline in certain inflation measures.

Chair Janet Yellen in December said that being “patient” implies the Fed will not raise rates at least for the next two meetings.

“Fed officials are petrified that dropping its ‘patient’ language will trigger a sharp reaction in markets,” said Capital Econ­omics chief US economist Paul Ashworth. “The minutes suggest that officials are looking at some form of alternative guidance that would stress the data dependence of the timing of the first rate hike instead. The problem is that the Fed has only been able to qualify very vaguely what improvement in the data it is looking for.”

Gold rose last night, rebounding above a six-week low, rising a per cent to $1,213.07 an ounce. Platinum prices also ticked up after sliding to their lowest in five and a half years. The Mexican peso, Brazilian real, Turkish lira and South African rand all rose following the publication of the minutes last night.

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