Fed policymakers signal caution on inflation, rate hikes

The Federal Reserve is getting more dovish in the face of weak inflation data, reducing the likelihood of a third rate hike this year, which traders already see as very unlikely.

Three Fed policymakers on Tuesday expressed doubts about further rate hikes, with one influential policymaker calling for a delay in raising U.S. interest rates until the Fed is confident inflation will rebound.

A second Fed policymaker blamed the Fed’s rate hikes to date not only for weak inflation, but also for undermining the recovery in the labor market that many policymakers including Fed Chair Janet Yellen have cited as they have justified raising rates. Late Tuesday a third policymaker advocated patience on rate hikes, given slow growth and inflation.

Taken together, the comments from one third of the Fed’s current policy-setting panel suggest that months of falling or flat inflation readings could scuttle plans to raise rates once more this year and three times next year. Fed policymakers next meet Sept. 19-20 and are due to release fresh economic forecasts that may envision a flatter path for rate hikes ahead.

In a speech at the Economic Club of New York, Fed Governor Lael Brainard said the U.S. central bank should go so far as to make clear it is comfortable pushing prices modestly above the Fed’s 2 percent target. The Fed’s preferred gauge now stands at 1.4 percent.

“We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” said Brainard, a permanent voting member of the Fed’s monetary policy committee who in the past has convinced colleagues to delay tightening.

Source: http://www.reuters.com/article/us-usa-fed/fed-policymakers-signal-caution-on-inflation-rate-hikes-idUSKCN1BG2TT

Point Of View:

Based on the dovish comments of 3 Fed policy makers, the chances of another interest rate hike this has further dropped as inflation and U.S. economic data suggest a weaker economy.

Besides, due to the hurricane situation in Harvey, geopolitical risks in the North Korea missile, dollar is likely to remain bear for the second half of this year.

However, if the debt ceiling is a smooth one, that may help is bringing the dollar up.

Overall, dollar strength is weaker due the economy and political uncertainties.