Minutes Show US Fed Still On Track For Three Rate Hikes

Traders work on the floor of the New York Stock Exchange

Kaplan's views often closely mirror those of core Fed policymakers, who in December signaled they expect to deliver three rate hikes this year after raising rates three times last year.

"It might be early, but it is possible that the investment drought that has afflicted the US economy for the past five years may finally be breaking", Mr. Quarles said.

This would bring the federal funds rate, the central bank's key interest rate target, to 1.75% to 2.00%.

"At this point, we have completed the bulk of the work of post-crisis regulation", Quarles said.

The meeting, the final gathering led by former Federal Reserve chair Janet Yellen, concluded 31 January.

Economists have explained it by saying that the reasons for the rise in yields have not so much been driven by expectations for higher interest rates and stronger growth, but worries about runaway inflation that have caused a selloff in both the dollar and Treasuries.

The Dow Jones Industrial Average fell 0.67 percent to 24,797.78, while the broader S&P 500 index slid 0.55 percent, to 2,701.33.

This as the Fed minutes noted that a majority saw stronger growth lifting liking of further rate hikes.

Investors became nervous as the yield on the benchmark 10-year US Treasury note climbed to a four-year high, prompting a bout of across-the-board selling of equities. According to implied probabilities on Bloomberg, traders see a 100% chance that the first hike would come at the March 20-21 meeting, when Fed Chairman Jerome Powell holds his first press conference and new economic forecasts are released.

Hong Kong-listed Chinese social media and mobile gaming company Tencent was among the biggest contributors to the losses on A300 Index, falling 2.5%. Private analysts have boosted their outlook to 2.6 percent, according to the median forecast in a Bloomberg News survey.

The pickup in yields has begun to make bonds more attractive as an alternative to stocks, which makes some investors uneasy.

Fed officials "cautioned that imbalances in financial markets may begin to emerge as the economy continued to operate above potential".

The market's fear centers on the risk that the Fed will tighten monetary policy too quickly in response to tax cuts delivered at a time of low overall unemployment.

If the Fed moves three times by its September meeting, its benchmark rate will be positive after adjusting for inflation for the first time in more than a decade, prompting the central bank to pause quarterly rate rises and see how the economy is responding, said Ellen Zentner, chief USA economist at Morgan Stanley, in a client note Tuesday.

Wall Street has been focused on inflation since that meeting. As a result, the economic fundamentals remain supportive that the February drawdown was a correction as opposed to a change in the primary trend of the equity market. "Participants emphasized the critical need for the FOMC to maintain a credible longer-run inflation objective", the minutes said.

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