“Most participants” at the USA central bank’s policy meeting expected rate lift-off conditions to be right by their next meeting, having broadly dropped their worries about the global economy and recent market turmoil, the Fed’s minutes said.
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Most markets anticipated that the economic conditions in the U.S warranted a rate hike by December, but the Federal Open Market Committee’s comments hinting at a slower rate of growth for the USA economy has caused some dollar bulls to take profits, according to analysts.
“Dec. 16 is a very, very live date for action, and frankly, given the stellar 271,000 jobs report since the October meeting, we would be astounded if they don’t raise rates finally”, said Chris Rupkey, chief financial economist at MUFG Union Bank in NY.
“The US financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress”, the account said.
The regular survey, done October 15-19 ahead of the Fed’s policy meeting last month, also found that dealers gave slightly better odds than last time, of 22 percent, that rates would return to near zero within two years after liftoff.
The federal funds rate, which influences the cost of borrowing in dollars around the world, has sat at 0-0.25 per cent since December 2008, locked at an extraordinary low to support the economy’s slow recovery from the Great Recession.
When rate increases do begin, they will occur at a gradual pace, officials reiterated in the minutes.
Atlanta Federal Reserve President Dennis Lockhart on Thursday continued the drumbeat toward a potential December interest rate hike without explicitly setting a timetable. Short-term Treasury yields have risen in the last month, but remain at historic lows. Even so, Fed Chair Janet Yellen has said repeatedly this year that she expects rates to rise by the end of 2015. “In the event, the Fed managed a rare feat – they left the market convinced that they will hike rates in December but equally convinced that it won’t be a big deal”.
“Members emphasised that this change was meant to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalisation process at the next meeting”, said minutes of the FOMC’s October 27-28 meeting, released Wednesday in Washington. A weak dollar makes dollar-priced metals cheaper for non-U.S. investors.
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Minutes show that at the October policy meeting, Fed staffers delivered a presentation that also estimated the current equilibrium rate at about zero.
