Since the meeting, we’ve heard from a dozen or so Fed speakers, including Fed chair Janet Yellen, who said two weeks ago that raising the benchmark rate next month was a “live possibility”, should economic data support a hike.
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Most of the Federal Reserve’s policy board expected that the U.S. economy would be strong enough in December to justify a rate increase, minutes to their last meeting showed Wednesday.
Minutes of the October 27-28 meeting of the Federal Open Market Committee, the Fed’s policy-setting group, also reinforced the notion that a December increase is likely if the economy improves further and markets stay stable.
Minutes of the Fed’s October meeting showed that the conditions may “well be met” by the next gathering in December.
Fed officials were even more bullish, according to the meeting minutes.
Interest rates futures implied traders clung to a growing consensus view of a December rate hike, followed by a slow path for subsequent ones. “A number” of them said a delay “could increase uncertainty in financial markets and unduly magnify the perceived importance” of the first rate hike. Fed officials emphasize that they plan to retreat gradually, because the economy remains relatively weak.
They said further putting off a rate increase “could be interpreted as signaling lack of confidence in the strength of the USA economy or erode (the Fed’s) credibility”.
The minutes showed that Fed officials debated whether to insert the “next meeting” phrase into the statement.
At its meeting in September, the Fed cited the constraints on economic activity posed by global weakness and market turmoil.
“The USA financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress”, the account said.
The debate took the form of a discussion of the equilibrium real interest rate – the policy rate, net of inflation, that would be consistent with full employment and the Fed’s 2 percent inflation goal.
William C. Dudley, president of the Federal Reserve Bank of NY, said he did not think markets would be surprised when the Fed starts raising rates.
The October meeting came after a disappointing September jobs report which was noted in the minutes.
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“I am comfortable with moving off zero soon, conditioned on no marked deterioration in economic conditions”, Dennis Lockhart, president of the Atlanta Fed and a reliable monetary policy bellwether, said Wednesday at a conference in NY.
