Yesterday's publication of the minutes of the September meeting of the Federal Reserve System led to a weakening of the US dollar against a number of world currencies. Most leaders of the Fed expect a further increase in interest rates despite weak inflation. Some participants expressed concerns about how slow the rates of curtailment of incentive measures are and that it could lead to an increase in inflation above the target level.
The minutes also indicate that the market reaction to the reduction in the balance of the Fed will be limited. However, it is necessary to remain patient while curtailing soft policies by assessing inflation trends.
Fed experts expect that GDP in the second half of 2017 will grow slightly faster than previously forecast and that the trend will improve significantly in 2018 and 2019. Unemployment will continue to decline gradually in the next couple of years. However, the estimate of long-term natural unemployment was slightly lower. The Fed's management also expects unemployment to fall by the end of this year, which will positively affect the committee's plans for interest rates.
Proceeding from the protocols, it can be concluded that the increase in the interest rate, which is scheduled for the end of this year, is likely to take place even in the conditions in which the American economy is now located. Most likely, the recent strengthening of the US dollar was directly associated with an increase in the expectation of higher rates, but it would be wrong to rely on its growth in the future based only on these data.
Yesterday, the representative of the Fed, George, spoke in favor of raising interest rates to prevent overheating of the economy. In his view, low inflation is not a problem in conditions of full employment. According to him, the FRS does not need to wait for reliable evidence of inflation to 2% before raising rates again. George also believes that the Fed's target inflation rate of 2% is paid too much attention and the rejection of further increases in rates will create a risk of overheating of the economy, high inflation, and instability in the markets.
Another representative of the Fed, Williams, also spoke yesterday in favor of a gradual increase in rates, as it is necessary for the economy. In his opinion, inflation will return to 2% within a couple of years, as the economy is on the path of moderate growth.
If expectations of an increase in interest rates in the US did not support the US dollar, then statements by ECB representatives who expressed concern about the low level of inflation did not affect the quotations of the euro.
The representative of the ECB, Peter Praet, said yesterday that progress towards achieving the target level of inflation in the euro area is still insufficient. However, the deflationary risks in the eurozone have completely disappeared. Praet also drew attention to the fact that the growth in prices in the euro area still slowed, although GDP growth accelerated.