Wall Street pared gains after the FOMC (Federal Open Markets Committee) published the minutes of its April meeting. They showed an unexpected increase in hawkish sentiment among the voting members, several of whom believed that a hike in US interest rates in June would be warranted if the decision was supported by the data.

Ordinarily, those sentiments would barely register with the markets because, for the most part, the data hasn’t supported the case for a hike but this week, we saw core inflation increase at its fastest pace in three years with April CPI up 0.7%. Elsewhere in the economy, the apparent contraction in the manufacturing sector became a distant memory with overall industrial production perking up significantly and registering a 0.7% gain in April.

“Suddenly, investors are very aware of the fact that the Fed actually could raise next month but it’s worth remembering that the April Fed meeting took place before last month’s non-farm payrolls data was compiled. They were probably expecting jobs growth to continue to post 200,000-plus gains but last month saw only 160,000 new jobs created. That may stay the Fed’s hand come June,” said Oscar Tennyson, chief economist at Monex Financial.

Federal Reserve officials have been sounding increasingly hawkish as investors have increasingly ignored remarks from various officials trying to impress upon them the imminence of further rate hikes.

“Despite the higher CPI, Monex Financial still don’t think the Fed will raise come June. They’re prepared to let inflation mount because they don’t want to choke off the recovery,” explained Tennyson.

About Monex Financial
Monex Financial is a privately held, fully independent investment and wealth management leader, with retail operations based in Toronto, Canada and corporate trading division headquartered in Tokyo, Japan.

From our offices in Toronto the capital city of the province of Ontario and financial and business capital of Canada, we serve private individuals and families from N. America to Europe and with our corporate trading division strategically located in Tokyo, Japan, we have unrivalled access to Asia’s high yielding emerging markets, access to corporate resources, private equity and global mergers and acquisitions.