Fed should be cautious on further rate hikes, Kaplan says

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Daily USD JPY

Certainly, the core of the Fed have a glass half-full approach to inflation, but there is no doubt that if the future inflation reads don't turn around, like they expect, then the market is going to pile into USA treasuries and continue offering USD's, notably against emerging market currencies like the MXN and BRL. It also maintained its forecast of one more rate hike this year and three the next.

The statement that followed the FOMC meeting states that the members felt the U.S. economy continued to expand moderately, and they acknowledged the moderate job growth in the previous quarter. Presently, the Fed expects economic growth of 2.2% in 2017, which is up from its last projection. "We could not be coming at this problem from more different starting points and yet we are ending up largely at the same place".

ING have outlined in a note to investors that they still believe the Fed. will hike again in September, but don't believe there is at tremendous amount of merit to the "transitory" argument the Federal Reserve have been making in regards to inflation. But in his view, he said, waiting to raise rates further is the less costly option.

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Minneapolis Fed President Neel Kashkari justified his second dissent on interest rate policy this year, saying he voted against this week's increase in borrowing costs because he doesn't think the economy is strong enough to handle it.

Fed chair Janet Yellen said signs of cooling inflation and wage growth in the USA economy were no cause for concern, but market-side experts doubted that the central bank would be able to proceed with more rate cuts this year in light of the downward trend. But with inflation now falling to 1.5 percent by the Fed's preferred gauge, "even having that conversation right now makes no sense".

Kashkari said majority are too concerned that any mistake might lead to a return of the high inflation in the 1970s. Yellen's term ends in early February 2018 and earlier this week declined to talk about her plans after.

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