Some officials believed the economy was already strong enough at that time to justify a hike.
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Investors in the region were responding to Wall Street’s positive response to more hawkish minutes from the October meeting of the US Federal Reserve.
Stocks reacted better when the Fed increased rates in August 1977, moving at a gradual pace as the Paul Volcker-led committee aimed to combat inflation. Malaysia added 0.21 per cent and Jakarta rose 0.47 per cent. Hong Kong’s Hang Seng index advanced 1.4 percent to 22,500.22, while Australia’s S&P/ASX200 jumped 2.1 percent to 5,242.60.
Against the yen, the dollar fell about 0.3 per cent to 123.25 yen, down from a three-month peak of 123.77 yen scaled after the Fed minutes. The Singdollar recovered to 1.4153 from 1.4228. The news that the Fed looks to be clearing the decks for its first interest rate hike in more than nine years hasn’t caused too much consternation in the markets.
Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labour market, and inflation, these conditions could well be met by the time of the next meeting.
Fischer noted that the question lingers of whether Asia and emerging markets are prepared for policy tightening by global central banks.
William C Dudley, the president of the Federal Reserve Bank of NY, who has emphasised the importance of preparing financial markets for liftoff, said on Wednesday before the publication of the minutes that it appeared investors were ready for the Fed to start raising rates.
“We fully expect (Fed chairwoman Janet) Yellen to promote this heavily at her press conference”, he added, referring to what Ms Yellen would say after the pivotal December 15-16 policy meeting.
Indeed, the October labor report released earlier this month far surpassed economists’ expectations, not only in terms of job creation but also regarding the vexing problem of wage growth.
United States rates futures on Thursday implied that traders see a 72% chance the Fed will hike rates in mid-December, compared with 68% on Wednesday.
Staff outlined how the Fed had potentially fallen behind in communicating its intentions, with markets pushing expectations of an initial rate hike into next year.
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“We think only about 60 percent of the Fed hike is priced in, so there is clearly scope for the dollar to go higher if that pricing moves to 80-90 percent”, Barclays strategist Nick Sgouropoulos said. “The second rate increase will likely not occur until mid-2016”, he said.
