The US dollar had a brief boost on Wednesday following the publication of the Federal Reserve Open Market Committee’s minutes of the latest rate setting meeting. The minutes telegraphed that the Fed was not likely going to hike rates in June.
While many analysts have shifted their timing of the first interest rate increase to September due to a spate of weak US economic data lately, some had expected a rate rise in June. The data show that the US economy was growing more slowly than expected, and inflation remaining lower than the Fed would like.
Interest rates in the US have been at record lows near zero since December 2008 with the aim of boosting economic growth during the recession. Lower rates cut the cost of borrowing which would help businesses and individuals and boost economic activity if they can make more purchases.
However, the Fed is in no rush to raise interest rates anytime soon especially since unemployment has not fallen yet to normal levels. There is a fine balance between removing stimulus or keeping it. The Fed has to find the right timing. If it tightens monetary policy too soon (remove stimulus), the economy could fall back into recession. However if it keeps the stimulus too long, the main risk would be a rise in inflation that could damage the economy.
The next scheduled meeting of the FOMC is on June 16-17.