Gold inches up on North Korea tensions, Fed minutes in focus

Some Fed officials want to announce the beginning of the process "within a couple of months", according to minutes of the USA central bank's June meeting.

"Fed members went back and forth on the state of the economy, with some agreeing that the drop in the unemployment rate is tinder for eventual inflation while others were less anxious", said Peter Boockvar, chief market analyst with The Lindsey Group, in a client note. The pace of price increases has slowed in recent months, forcing the Fed to back away from its earlier predictions that this would be the year that inflation approaches the Fed's desired 2 percent annual pace.

"Members agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation".

Still, the decision to reduce the Fed's holdings came across as a sign of optimism for an economic recovery embarking on its ninth year.

The Federal Reserve chose to raise its benchmark interest rate by a quarter-point at the conclusion of the June 13-14 meeting, the third such increase in six months.

The slow start to the year has led some economists to caution against additional interest rate hikes this year.

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U.S. central bankers are divided over the near-term risk of inflation and disagree over the timing of interest rate hikes into next year, minutes of the last Federal Reserve meeting showed Wednesday. Most Fed officials expected the economy's growth to rebound significantly in the second quarter.

The committee questioned why financial conditions had not tightened despite recent rate rises and a few said equity prices were elevated. Meanwhile, U.S. officials will soon confront the challenge of raising the debt ceiling to continue to fund the government. The rate-setting committee is next scheduled to meet to decide interest rate policy on July 25-26. With the USA economic picture beginning to show cracks, there is reason to believe a September rate hike may not be advisable.

Some Fed members were concerned that investors' strong appetite for risk "might be contributing to elevated asset prices more broadly", the minutes read.

After the June meeting, Yellen said the plan would lead to "a gradual and largely predictable decline" in the assets.

Konstantinos Anthis at ADS Securities said: "Traders will remain focused on the dollar today ahead of the FOMC minutes' release that is expected to shed more light on the Fed's plans to start unwinding their balance sheet".

  • Sonia Alvarado