Consensus For A Rate Hike Slowly Building: Here Are Implications For The Dollar, Stocks

U.S. stocks are trading slightly up on Wednesday. Minutes from July’s FOMC meeting revealed that, while some members of the Fed believe an interest rate hike should come soon, most think more information (especially regarding inflation trends) is needed, and would rather delay the decision.

This means interest rates will remain unchanged for now, and likely until after the elections, although some analysts think a hike could come before them. Overall, experts seem to believe the minutes were quite balanced.

Highlights

"The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff's assessment that both monetary and fiscal policy appeared to be better positioned to offset large positive shocks than adverse ones," the minutes read.

Related Link: Will The Fed Derail This Rally?

On the other hand, several committee members "expressed concern that an extended period of low interest rates risked intensifying incentives for investors to reach for yield and could lead to the misallocation of capital and mispricing of risk, with possible adverse consequences for financial stability."

Expert Comments

DriveWealth's Brian Dolan commented on the minutes, stating they "contained more concrete indications that a consensus to raise rates is slowly building."

"Along with NY Fed. Pres. Dudley's recent comments that markets are underestimating the likelihood of higher rates, September's meeting is likely to be considered increasingly a 'live' meeting, where a rate hike is more possible," he added.

"I still think the Fed will stay on hold, but the pendulum of market thinking, and risk sentiment, is going to swing toward 'higher rates sooner' which should support the US dollar and potentially curtail recent stock market gains," Dolan concluded.