The Australian dollar is sharply higher today on the back of the US Federal Reserve minutes meeting yesterday where they cautioned on raising interest rates.
As widely expected the US Fed kept rates on hold in March but the minutes meeting showed there were a few board members against the move, and recommended the central bank lift rates sooner rather than later out of fears delaying the move could trigger a sharp increase in rates later in the year.
The reason to keep monetary policy on hold by a majority of the board members was the fear of global growth worries, and an early move may derail the process of the US economic recovery.
“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run” the minutes noted.
Although inflation is moving towards the Fed’s target it’s still a little lower than they would like and they noted that this will play an important factor in the movement of rate hikes.
“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation” they said
“However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data” they added.
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