FED
Economic progress continues in the U.S., but its central bank would be wise to continue keeping policy loose, Fed Governor Lael Brainard said in a closely watched speech Monday.
Amid market concerns that the Fed was about to resume its rate-hiking cycle, Brainard instead offered cautionary tones against moving too fast. In particular, she remains concerned about the impact that global difficulties will have on the U.S. economy.
Still-muted inflation and uncertain developments ahead "counsels prudence in the removal of policy accommodation," Brainard said, according to prepared remarks she was to deliver to The Chicago Council on Global Affairs. "I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation."
Chances of a rate hike at the Fed's next meeting immediately slumped after news of Brainard's speech broke. Traders now anticipate just a 15 percent probability, down from 21 percent before the speech and as high as 30 percent Friday. However, the likelihood of a move before the end of the year edged up slightly, now standing at 59.2 percent, up from 57.7 percent.
Current economic conditions warrant a "serious discussion" of whether to raise interest rates at next week's Fed meeting, Atlanta Federal Reserve Bank president Dennis Lockhart said on Monday in remarks that may raise the likelihood of Fed action.
"If 1.6 percent inflation and 4.9 percent unemployment were all you knew about the economy, would you consider a policy setting one tick above the zero lower bound still appropriate?" Lockhart said in a morning address at the National Association of Business Economists. "I think circumstances call for a lively discussion next week."
Dollar
The dollar was on the defensive on Tuesday as markets remained hostage to seesawing speculation on the outlook for U.S. rates, with dovish comments from a Federal Reserve policy maker providing the latest catalyst.
Investors now see less chance of a U.S. rate hike next week after Federal Reserve Governor Lael Brainard on Monday warned against the Fed removing support for the economy too quickly.
"We can stick with our main scenario that the Fed won't raise rates in September. All the talk about a possible rate hike in September turned out to be noise," said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank's Tokyo branch.
The dollar index .DXY =USD slipped to 95.10 from around 95.35 at the end of last week.
OIL
Oil prices ended nearly 1 percent higher on Monday as a softer dollar and stronger U.S. equity markets helped crude futures rebound from an early drop pressured by worries about increased drilling activity for oil in the United States.
Forecasts that U.S. shale oil production could fall for an 11th straight month in October also supported oil prices, although gains were capped by expectations that U.S. stockpiles may have built again last week after a sharp drawdown the previous week.
Brent crude LCOc1 settled up 31 cents, or 0.7 percent, at $48.32 per barrel.
U.S. West Texas Intermediate crude CLc1 rose 41 cents, or nearly 1 percent, to settle at $46.29.
Reference: Reuters, CNBC
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