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Wall Street closes higher after Fed minutes

27 Mai 2017

The Fed is gradually reducing those incentives by raising rates because it judges that the economy is expanding at roughly the maximum sustainable pace.

Policymakers appear divided on whether to raise rates as early as June.

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On Thursday, data on weekly jobless claims highlighted brightening prospects for the USA economy and helped steady the dollar index.

In the minutes, the Federal Reserve mentioned several times that the recent slowdown in growth was likely to be "transitory" and that the economy would likely rebound in coming months. The recent batch of weaker data heightened caution over policy tightening.

"The FRB's stance on rate increases has not changed significantly", says Yuji Saito of Credit Agricole.

The minutes also showed that policymakers favoured a gradual reduction in its massive balance sheet.

"That's good. Even better (because it leaves no room for speculations as what the Fed will or will not do), the minutes also provided greater clarification on what the Fed's doing about its 'reinvestment policy". This should have been bad news for long term debt and should have led to a drop in prices of US Treasuries and a rise in yields but instead the opposite happened. He said the Fed might start with a cap of $20 billion in bonds that would be allowed to roll off its balance sheet, with amounts above that level continuing to be reinvested. The currency has managed to put some distance between a nine-month low of 9.577 plumbed three weeks ago when oil prices fell to their lowest levels since November.

Interest rate futures imply traders see about an 80-per cent chance of a quarter-percentage-point rate hike at the Fed's next meeting in June.

DiMartino Booth, who is now the president of Money Strong, questioned whether the markets forecast a September hike.

For now it's unclear whether a June hike is in the cards. The Fed now uses the principle from these bonds to buy new ones once they mature.

Before the minutes were released, "we thought there was a pretty good chance" of a rate increase in June, said Michael Feroli, chief USA economist at J.P. Morgan Chase & Co. The FED has been slowly trying to reel in inflation to the target 2% in order to make the economy more stable.

However, the odds of a further increase this year dipped to 46 percent, from roughly 50 percent late on Tuesday. This would be encouraging for the Fed to raise rates next month. In the aftermath of the recession, the United States unemployment rate hit 10%.

The U.S. dollar, which has steadied after its worst week in more than a year, fell 0.1 percent against the index measuring its broader strength while gaining marginally to 111.75 yen and $1.1213 per euro respectively.

Wall Street closes higher after Fed minutes