The minutes were seen to indicate heightened Fed caution toward interest rate hikes and took the wind out of an earlier bounce by the dollar, which had been plagued recently by USA political concerns centered on President Donald Trump.
A June rate increase would mark a faster pace for the Fed. The currency has managed to put some distance between a nine-month low of 9.577 plumbed three weeks ago when oil prices fell to their lowest levels since November.
The central bank held interest rates steady yesterday as anticipated, but noted strong spending by Canadians along with a housing boom and job growth.
Originally the Feds meant to start shrinking their balance sheet in their December meeting but clearly there has been a change.
It sounds scary to think that the Fed will soon reduce its war chest of bonds. This was interpreted as a dovish minutes by the markets and the dollar has been sold off since then.
After it met early this month, the Fed left its key policy rate unchanged after having raised it at its December and March meetings.
While the yield curve flattened, the S&P 500 closed at a record high after minutes from the United States central bank's May 2-3 policy meeting indicated the Fed would gradually raise rates and wind down its US$4.5 trillion of bond holdings. Nothing in the material the Fed released Wednesday suggested otherwise. On the flip side, Furukawa is down 3 percent, Tosoh Corp.is lower by nearly 3 percent and Tokai Carbon is losing more than 2 percent. "It won't lift the rate structure much", he said. In the aftermath of the recession, the United States unemployment rate hit 10%. "In the past, they had said the slowdown was transitory", said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
Some members said there might be need for a more gradual approach to raising interest rates, noting that inflation has failed to accelerate as expected.
Federal fund futures implied that traders believe there is an 83% probability that the Fed will raise rates by a quarter of a percentage point at its June meeting, according to CME Group's FedWatch tool. In addition the annual growth rate is also expected to pick up.
The discussion of the Fed's staff plan for reducing its bond holdings provided the most concrete information so far on how the central bank might proceed.
"OPEC officials prefer ... to wait and see the impact of an extension in helping rebalance the market prior to taking any more drastic actions", James Woods, analyst at Rivkin Securities, said. Currently, all maturing securities are reinvested by the Fed. The Canadian dollar hit its strongest since mid-April at $1.3389 per USA dollar after the Bank of Canada kept interest rates unchanged and gave a more upbeat assessment of the economy than some investors had expected.
Higher interest rates tend to boost the United States dollar and push bond yields up, increasing the opportunity cost of holding non-yielding bullion and thereby pressuring gold prices.