Fed policymakers clash on outlook for inflation

Kelly Massey
September 28, 2017

-Gold declined 1.14 percent to $1,295.85 an ounce.

Weaker than expected inflation has become a key concern for the Fed as its rate-setting Federal Open Market Committee tries to "normalise" monetary policy by raising its key federal funds rate back to levels seen before the financial crisis. "What causes inflation? Excess money, which will be revealed in the foreign exchange and commodity markets and bond markets".

On the economic front, USA new orders for manufactured durable goods in August increased 3.9 billion us dollars, or 1.7 percent, to 232.8 billion dollars, beating market consensus, the Commerce Department announced Wednesday. The yen pared some of the previous day's gains, which followed North Korea's declaration it could shoot down US warplanes. With the lower dollar, tax reform, oil restive, tightish labour market and reconstruction all set to boost the United States next year the USD is starting to swing.

Republicans in the U.S. Congress and the White House called for slashing tax rates on businesses and the wealthy on Wednesday, as part of a new tax plan that offers few details about how to pay for tax cuts without expanding the federal deficit.

Investors also sold their holdings of government paper after Federal Reserve Chairwoman Janet Yellen on Tuesday outlined the Fed's reasoning for an additional rate increase this year.

It was also interesting to note that Fed officials worry that keeping rates lower allows little room for stimulus when another economic slowdown hits. In global markets, dollar found support for Fed Chairman Janet Yellen's explanation that interest rate hikes should be continued. USA prices had rallied on Monday, with the gains spurred in part by a threat from Turkey's president to cut off oil exports from a Kurdish region of Iraq.

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Comex December gold, at the session low of $1,285.30 an ounce, has lost almost 6% of its value since the one-year high of $1,362.40 on September 8.

Oil prices remained stable on Wednesday, hovering near 26-month highs hit on Tuesday after USA data showed an unexpected drop in crude stocks as refineries boosted output after threats from Turkey to cut crude exports from Iraq.

"The divergence between US and euro zone data surprises is closing rapidly and while the once popular dollar parity forecasts still look ridiculous, the euro looks past its peak", said Sean Maher, an independent macro-strategist based in London.

The benchmark S&P 500 Index (NYSEARCA:SPY) pared gains to finish flat at 2,496.84. The Dow Jones industrial average lost 11.77 points, nearly 0.1 percent, to 22,284.32. November Brent on Tuesday fell 58 cents, or 1%, to $58.44 a barrel on ICE Futures Europe.

Compared to the Japanese Yen, the dollar climbed 0.4 percent to 112.19 yen. The euro fell to $1.1788 from $1.1791.

Other reports by Guamnewswatch

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