S&P 500, Nasdaq Climb in Return From Break, Fed Talks Balance Sheet

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The markets have doubted the Fed will hike rates for a third time this year, giving just about 50 percent odds for a September rate rise.

Some Fed officials are anxious that investors are not responding to the recent rate increases.

William Dudley, the president of the Federal Reserve Bank of NY, has suggested the Fed might need to raise rates more quickly in order to achieve its goals. But at some point, increases to the Fed's benchmark interest rate and reductions to its balance sheet will begin to affect bond markets and raise the price of loans for everyday Americans, he said.

But a few Fed officials were less comfortable than the prospect of higher rates as implied by the central bank's June projections, saying that too quick a path might prevent a "sustained" return to inflation at that level. Job gains had moderated but had been solid, on average, since the beginning of the year, and the unemployment rate had declined. The pace of price increases has slowed in recent months, forcing the Fed to back away from its earlier predictions that this would be the year that inflation approaches the Fed's desired 2 percent annual pace. Some Fed officials suggested at the June meeting that this reflects both the possibility of slower economic growth and the influence of the Fed's own bond holdings.

Members also indicated a willingness to continue increasing interest rates at coming meetings even with recent softening inflation trends.

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Horizon has said it now operates within a range of 550 to 700 percent, most recently stating it anticipates finishing the year at 585 percent.

Other central bank officials have raised concerns about growth.

"Most participants viewed the recent softness in these price data as largely reflecting idiosyncratic factors, including sharp declines in prices of wireless telephone services and prescription drugs, and expected these developments to have little bearing on inflation over the medium run", according to the minutes.

As of Wednesday afternoon, markets were projecting a 97 percent chance that the Fed would remain on hold when it meets again in July. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments. A few others expressed concern that "subdued market volatility" could lead to financial stability risks.

The Federal Reserve plans to reduce their bloated balance sheet but failed to provide a specific timeline to begin the process, the minutes of the June Federal Open Market Committee showed.