After Yellen’s recent testimony, there were few doubts that the Fed is set to raise rates in December. Also, recent data was looking good. And now, the FOMC minutes also confirm the upcoming rise of interest rates. Here are three opinions:
Here is their view, courtesy of eFXnews:
Nov FOMC Minutes: Fed On Track To Hike In Dec; Not Much Market Reaction – CIBC
The Fed’s most recent statement was light on changes, but the markets heard the message loud and clear. The minutes of the meeting only confirm that the Fed is ready to tighten policy in December, with most members seeing a rate hike as being appropriate ‘relatively soon’. Moreover, some officials saw a December rate hike as important to Fed credibility and even saw the economy as already having reached maximum employment. That said, there are reasons to believe that the pace of tightening will be gradual. Several officials judged there is still appreciable slack in the labour market, in direct contrast to those who believe that further gains will push the economy through full employment. Moreover, some Fed officials remain wary of tightening too early, with monetary policy so close to the lower bound.
All told, not much new was revealed in the minutes, and it shouldn’t garner much market reaction. The Fed is still on track to hike December, with further evidence needed to consolidate the current divergence in opinions.
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Nov FOMC Minutes: All ‘Teed-Up’ For A December Hike – BNPP
The November FOMC meeting minutes gave the overall impression that December is baked in, failing a substantial shock. And this was before the election and the subsequent positive assessment by markets. December seems as certain as any rate move in recent years.
A substantial majority viewed the risks as roughly balanced, though a few still saw significant downside risks. When the Fed says ‘balanced’ it means they have just hiked, so roughly balanced signals very close to hiking.
The participants “generally agreed” the case for a rate hike had “continued to strengthen.” Most agreed it could well become appropriate to raise the rate “relatively soon” (which we translate as “December”).
Some said that to preserve credibility, the hike needed to come at the “next meeting”. A “few” advocated an increase in December (though only two dissented). * “Many” thought risks to economic and financial stability could increase over time if the labor market overheated appreciably, though some argued undershooting the full-employment rate of unemployment could have favorable supply-side effects. The latter point is one the Chair has made, but it sounds like not everyone buys that and more in fact worry about the possible adverse implications of undershooting full employment than see it as a plus..
The Committee reiterated a slow pace of future hikes, saying that monetary policy would remain “dependent on the outlook as informed by incoming data” and that participants expected that “economic conditions would evolve in a manner that would warrant only gradual increases in the federal funds rate.”
Nov FOMC Minutes: Fed Set To Move In December – Danske
The FOMC minutes from the November meeting were quite a non-event, mainly because much has happened since the meeting.
We think the higher wage growth and lower unemployment rate in the jobs report for October were sufficient ‘further evidence’ for the Fed to feel comfortable raising rates in December (regardless of the election result). The combination of the market rally on the back of the Trump victory and strong US economic indicators for Q4 has only made the case for a December hike even stronger. Markets have priced in a Fed hike in December with certainty.
The Fed is only expected to partly offset the fiscal boost from Trump, as the FOMC turns more dovish next year due to shifting voting rights and many dovish FOMC members (including Fed Chair Yellen) have said it may be a good idea to let the economy run a bit hot.
Markets expect four hikes from now until year-end 2018 against only two hikes before the US election. While the ‘median’ dots in the September projections indicated two hikes in 2017 and three in 2018, we expect two Fed hikes each year.
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