The Federal Reserved released the minutes for the April FOMC meeting yesterday.
According to Barrons.com the tone of the minutes was surprising hawkish and indicates the the Fed is ready to ready to hike rates at the meeting scheduled for June 14 and 15.
While there were some dovish sentiments regarding the need for global financial stability and the possibility of a hike in front of the British referendum to exit the European Union, most observers feel that absent a significant financial event in the mean time, the Fed will lose a lot of credibility if it backs away moving another 25 basis points in June.
December’s raise of 25 basis points was the first Fed rate hike in nearly ten years.
The Fed Funds futures rate indicate a 33% chance of a June hike, which seems a bit low given the language of April’s minutes, but the 33% probability is double what it was yesterday.
The SPDR Gold Shares ETF – GLD closed down 1.7% on the day at 120.10. The yield on the ten year treasury rose 12 basis points to 1.88%. Meanwhile the S&P 500 retreated from gains earlier in the day but managed to close barely positive for the day at 2,047.
Attention will surely turn to Fed speak and investors won’t have to wait long as New York Federal Reserve Chairman William Dudley speaks at 10:30 am in New York.
Fed Chair Janet Yellen will speaking later this month on the 27th at Harvard University.
If fed officials continue to jaw bone about rate hikes they really run the risk of losing credibility. They have already backed off plans for as many as four hikes during 2016.
Complicating the Fed’s ability to raise are global concerns. In particular China, whose currency maintains collared peg to the US dollar is facing internal pressure to devalue the Yuan. A rate hike by the Fed would thus exacerbate this situation and could trigger another global market selloff similar to the beginning of 2016.
Many followers of Austrian School Economics view the Global Financial systems’ inability to absorb interest rate hikes as seemingly insignificant as 25 basis points after seven years of zero or near zero interest rate policy, as a sign of trouble.
Investors would be wise to consider the possible implications for their portfolios and long term investment plans.
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