The Federal Reserve released the minutes from its September 17-18 policy meeting yesterday.
Thursday, October 9, 2014
The report indicated the Fed’s caution surrounding an interest rate increase as weak economic growth abroad and a strong US dollar could inhibit the domestic economy.
Underwhelming data from Europe, Japan and China may inhibit US exports, while the surging dollar will make it difficult for inflation to reach the Fed’s target of 2%. Those factors should allow the Fed to maintain its near-zero interest rates until mid-2015, despite strong domestic jobs growth and consumer confidence numbers.
“Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the US external sector,” stated the minutes, “...other participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk.”
The slow, deliberate timing for interest rate hikes is good news for investors, as yesterday’s US stock markets gained following the minutes’ release.
European markets fall
European optimism over the US Fed news boosted stocks briefly, but could not sustain the growth as major indices fell, according to Market Watch. The Stoxx Europe 600 index dropped 0.3%, continuing its 0.9% descent since Wednesday. France’s CAC 40 declined 0.7% and Great Britain’s FTSE 100 slid 0.6%.
The markets suffered as a result of weakness in Germany, Europe’s biggest economy. German exports in August endured their worst month since January 2009. Statistics group Destatis found exports dopped 5.8%. That data added to poor business and consumer confidence numbers from earlier in the week and pointed to a worse-than-expected third quarter.
“While some special factors may be at play, we consider the trend over the quarter thus far as presenting clear downside risk to our 0.3% quarter-on-quarter growth forecast for the economy over the third quarter 2014,” Timo del Carpio, European economist at RBC, told Market Watch. “Overall, while we expect something of a rebound in the final month of the quarter, the suite of indicators for Germany are far from suggestive of a convincing rebound in the third quarter.”
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