According to the minutes from the FOMC meeting held on June 16 and June 17, which were released on July 8, the FOMC “saw economic conditions as continuing to approach those consistent with warranting a start to the normalization of the stance of monetary policy.” However, the FOMC also reiterated its expectation that, “even after employment and inflation are near mandate consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
While the Fed was cautious on developments in Greece and foreign growth, especially in China, there was no sense of real urgency around these issues. The committee said it will form its view based on the incoming data. The FOMC minutes, however, have not changed anything in terms of market expectations of upcoming policy decisions.
Investors need to note that Greece’s default on debt repayment and China’s stock market slump happened after the FOMC committee met in June. These developments could also have a significant impact on the Fed’s decision of monetary tightening. Since China (FXI) is the second largest economy in the world, there would be a significant spillover impact of any financial slump there on the global markets as well. This could also deter the Fed from raising interest rates this year.
If the Fed delays the rate hike, it would be positive for non-income yielding assets, including gold (GLD). It would also be positive for stocks like AngloGold Ashanti (AU), Gold Fields (GFI), and Barrick Gold (ABX). Combined, AngloGold and Gold Fields constitute 8.7% of the VanEck Vectors Gold Miners ETF (GDX).