inflation fears=gold price upwards

Gold prices rises on inflation.....looks good for gold
Fed minutes reveal inflation fears

Federal Reserve officials held off on raising short-term interest rates at their September policy meeting because they had nagging worries about when inflation would return to 2 per cent after running below their official target for more than three years, according to minutes of the meeting released at 5am (AEDT) on Friday.

The Fed has twin goals of a robust labour market and low, stable inflation. At the last meeting, which they had earlier signalled could lead to the first interest rate increase in nearly a decade, officials decided they were near their goal of "full employment", but weren't yet convinced about inflation. Having approached the job market goal, the minutes suggest the prospective interest rate decision will depend on whether they become more confident inflation won't continue to undershoot their objective.

"Many members said that the improvement in labour market conditions met or would soon meet one of the (Fed's) criteria for beginning policy normalisation," the minutes said. "But some indicated that their confidence that inflation would gradually return to the (Fed's) 2 per cent objective over the medium term had not increased."

Fed staff estimated inflation wouldn't hit the 2 per cent goal even by the end of 2018.
The Fed now faces an additional challenge. Jobs data released since the meeting showed private sector hiring cooled in August and September, introducing new uncertainty about whether the economy is fundamentally down shifting in the face of slow growth overseas and a strengthening US dollar, which is hurting exports.


As Fed chair Janet Yellen emphasised in a press conference following the meeting, turbulence in financial markets and economies abroad weighed heavily on the decision to keep rates near zero, where they have been since December 2008. Officials worried that "recent global economic and financial developments had imparted some restraint to the economic outlook and placed further downward pressure on inflation in the near term."

Fed officials have been signalling for months they expect to raise short-term rates before year-end. Early in the year many thought it could happen by June, but a first quarter slowdown stayed their hands. This summer a number of officials pointed to September, but expectations in financial markets for a move by then shifted down in August as the economic outlook shifted. Stock prices fell, the US dollar rose and yields on risky bonds increased in the face of uncertainties about China's economy and other emerging markets.

Some Fed officials have described the September decision as a close call. The minutes don't suggest there was intense disagreement with the decision to hold off on raising rates.

"After assessing the outlook for economic activity, the labour market, and inflation and weighing the uncertainties associated with the outlook, all but one member concluded that, although the US economy had strengthened and labor underutilisation had diminished, economic conditions did not warrant an increase in the target range for the federal funds rate at this meeting," the minutes said.

Thirteen of 17 Fed officials said in projections they expected to move this year. Ms Yellen emphasised in a speech after the meeting that she was among this group.

The Fed said the growth outlook and jobs performance are critical in their judgment about whether inflation is firming near 2 per cent and the time to move on rates has arrived. The Fed's inflation forecast places great weight on slack in the economy. As growth picks up and unemployment falls, officials believe, slack diminishes and puts upward pressure on prices.

"Most members agreed that their confidence that inflation would move to the (Fed's) inflation objective would increase if, as expected, economic activity continued to expand at a moderate rate and labour market conditions improved further," the minutes said. A few also said their confidence would rise if they saw wages picking up, though that wasn't a precondition for an interest rate increase.

"Other factors important to the committee's assessment of the inflation outlook were the expectation that the influences of lower energy and commodity prices on headline inflation would abate, as had occurred in previous episodes, and that inflation expectations would remain stable."

Though the Fed puts great weight on inflation and unemployment, some officials also are worried about excesses building in the financial system. Some worried that delaying rate increases could lead to an "undesired buildup" of financial imbalances that "would be costly to unwind and that eventually could have adverse consequences for economic growth."