Fed seen as more hawkish

THE FEDERAL Reserve should begin to normalise interest rates at the end of this year, according to several members of the Federal Open Markets Committee (FOMC) as revealed by minutes of the Fed’s 26-27 April meeting released last night.

However, the committee is split, with others believing that “underlying inflation remained subdued” and “longer-term inflation expectations were likely to remain anchored”.

Economists’ consensus is still that rates will not rise until 2012, but the price of treasuries dropped slightly after the minutes’ release and yields rose, suggesting they were marginally more hawkish than anticipated.

The yield on ten-year notes rose from 3.12 per cent to 3.18 per cent on the back of Fed comments that “many participants had become more concerned about the upside risks to the inflation outlook” due to rising commodity prices.