Interest rate hikes are coming. Most members of the Federal Reserve now believe the US economy could sustain a historic rise in interest rates as soon as December.
Minutes of Fed policymakers latest meeting, which were released on Wednesday, showed that “most” participants felt that economic conditions to allow a rate rise “could well be met by the time of the next meeting”. The next Fed meeting is on 16 December.
The minutes of the last meeting, which was on 27-28 October, said that “[w]hile no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting”. They also showed that only “a couple” members raised concerns that raising rates in December could be premature.
“The US financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress,” the minutes said. “Most participants saw the downside risks arising from economic and financial developments abroad as having diminished and judged the risks to the outlook for domestic economic activity and the labor market to be nearly balanced.”
At the last meeting, policymakers voted to leave rates at 0-0.25% – where they have been for the seven years since the financial crisis – but pointed towards the possibility of raising rates in December.
Since the October meeting, a number of Fed officials have publicly said that a December rate hike is on the table.
Janet Yellen, the chair of the Federal Reserve, told Congress earlier this month increasing rates in December was a “live possibility” if there are no shocks to the economy. Bill Dudley, the president of the New York Federal Reserve and the second most important US central banker after Yellen, agreed with her. Loretta Mester, president of the Fed’s bank in Cleveland, last week said the time to hike rates was “quickly approaching”.
Chris Rupkey, chief financial economist at MUFG Union Bank in New York, told the Associated Press that he would be “astounded” if the Fed did not now raise rates in December. “December 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,” he said.
The minutes of the October meeting showed that Fed officials think the the job market would improve further and that inflation would begin to move toward their 2% target.
The release of the minutes sent US stocks slightly higher. The Dow Jones industrial average was up 0.9% to 17,650 at 2.29pm. The Standard & Poor’s 500 index gained 1% to 2,070, taking it back into positive territory for the year.
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