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Fed's Williams Says Historically Low Interest Rates Will Persist

Dollar Lower Ahead of FOMC Minutes

Many Federal Reserve officials said the central bank may raise interest rates "fairly soon", according to minutes of the Fed's January 31-Feb.

They warned there there was a "high" risk that the U.S. unemployment rate could undershoot if growth turned out faster than expected, and the the Fed might need to raise official interest rates "more quickly than most participants now anticipated to limit the buildup of inflationary pressures".

A few participants "noted that continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the committee greater flexibility in responding to subsequent changes in economic conditions".

The Fed's rate-setting policy committee voted unanimously at the recent meeting to hold rates steady.

"The minutes had nevertheless performed one goal of confirming the fact that Fed members have been considering an upcoming hike", said Jingyi Pan, a strategist for IG Group.

In U.S. trading Wednesday, the Dow Jones Industrial Average enjoyed a massive winning streak with only small gains on Wednesday, shrugging off the chances of another rate hike come March. This may suggest that the market took the outcome of today's minutes to mean an unlikely March hike from the Fed was a lower probability than the skeptical had afforded.

Many economists believe the Fed will raise rates between two and three times this year. It's also projected to estimate private spending plans of A$84.8 billion for the 12 months starting July 1.

Fed officials also generally agreed on the need to begin discussions at upcoming meetings on how to change the balance sheet re-investment policy.

The Fed raised the fed-funds rate in December to a range of between 0.5% and 0.75%. That could trigger inflation pressures that would require the Fed to boost rates at a faster pace than financial markets now expect.

Boston Fed President Eric Rosengren, for instance, said February 15 that shrinking the portfolio could help prevent new financial bubbles.

While Federal Open Market Committee members recognised the heightened uncertainty over the effects of changes to fiscal policy under the new government, the committee seemed relaxed over the near-term risks to the economic outlook. A big concern for officials: uncertainty over President Trump's proposed economic policies.

"I would say the economy is performing right about as expected, maybe a little better", Powell said.