Gold Stuck Near 8-week Lows After Fed Minutes

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While nearly all members of the Federal Reserve voted to raise interest rates in June, the central bank appears to be divided over its longer-term plans as data continue to show that the economy is not vigorously responding to its rate increases, minutes from the Fed's closed-door June meeting reveal. Several committee members preferred to announce a start to the process within a couple of months, while others argued for delaying the decision until later in the year, to continue to judge the economy's progress.

The market consensus is toward a start in September, which would likely push another interest rate hike to the end of the year despite the Fed's optimism that stubbornly weak inflation will pick up. The minutes said "most participants viewed the recent softness" in inflation indicators "as largely reflecting idiosyncratic factors". As the Fed raises rates, lenders have lowered borrowing costs, the opposite of the effect intended by the central bank.

The increase was the Fed's second of the year and was taken as a vote of confidence in the US economic recovery and future pace of growth.

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A move to start putting the central bank's finances in order could be complicated if the economy doesn't respond as policy makers expect. But some participants said they were "less comfortable" with the pace of tightening. They think the Fed will skip a rate hike that meeting. The rate-setting committee is next scheduled to meet to decide interest rate policy on July 25-26. Fed policymakers voted 8-1 in June to nudge up the benchmark federal funds rate. Any profit the Fed has at the end of the year must be sent to the U.S. Treasury. "This program, which would gradually reduce the Federal Reserve's securities holdings by decreasing reinvestment of principal payments from those securities, was described in an addendum to the Committee's Policy Normalization Principles and Plans to be released after this meeting".

Policymakers were also divided on when to unwind the Fed's $4.5 trillion investment holdings of government debt accumulated in the wake of the 2008 global financial crisis. The reductions would begin this year "provided that the economy evolves broadly" as Fed officials are forecasting, she said.

"In their discussion of monetary policy for the period ahead, members judged that information received since the Federal Open Market Committee met in May indicated that the labor market had continued to strengthen and that economic activity had been rising moderately so far this year".

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