Thursday, October 13, 2016

Fed minutes show division but point towards December rate rise

The likelihood of the first US interest rate rise in a year has slightly strengthened after a number of Federal Reserve voting members said a hike would be justified "relatively soon".

With markets factoring in as much as a 70 percent chance of a December rate hike, several members noted higher rates would be warranted if the US economy continues to strengthen.

"Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded .. as expected," according to the minutes from the Fed's September policy meeting.

Despite signs of a stronger appetite for a rate rise, the minutes also signal caution and division among members about the actual timing on a rates move.

"It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation," the minutes say.
"A couple of members emphasized that a cautious approach to removing accommodation was warranted."

The minutes show that three voting members on the Fed's rate-setting committee dissented on the September policy in favor of an immediate hike when rates were left at between 0.25 and 0.5 percent.
There is concern that "without gradual increases in the target range" a tighter labour market could result in "a subsequent sharp tightening .. that could shorten the economic expansion."
There also appears to be jitters that inflation remains below the Fed's two percent target with voting members noting that "there were few signs of emerging inflationary pressures."
Wall Street stocks ended 0.1 percent higher after the Fed minutes were released despite initial analysis showing little new information in the Fed's rates thinking.
The US dollar was slightly higher on the continued speculation that the Fed will push the rates button in December.

The Federal Reserve board next meets on November 1 but a rate rise is seen unlikely a week out from the US presidential election.

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