Federal Reserve October meeting minutes

The Federal Reserve (Fed) released minutes from the October monetary-policy meeting, which showed that most members believe it will be appropriate to raise rates in December provided “economic data continued to improve and there were no anticipated shocks”.

The proposed increase will be the first time that interest rates in the US have increased since 2006, before the global financial crisis (1) as the jobs market continues to improve and inflation approaches the 2% policy target.

Economists had predicted that a rate rise might come in the September or October meeting, but US market volatility and concern about economic growth in China had delayed the decision (2).

The Fed noted that the recent turmoil in financial markets, caused by concerns regarding Chinese growth, had “abated”. “The US financial system appear[s] to have weathered the turbulence in global financial markets without any sign of systemic stress,” it said (2). Notes from the minutes showed there were fears that delaying rate rises further could create uncertainty by “increas[ing] uncertainty in financial markets and unduly magnify the perceived importance of the beginning of the policy normalisation process” (3).

A number of Fed officials have publicly hinted that a December rate hike is on the cards. Janet Yellen, the chair of the Federal Reserve, told Congress that increasing rates in December was a “live possibility”. Bill Dudley, President of the New York Federal Reserve, agreed. Loretta Mester, President of the Fed’s bank in Cleveland, said last week that the time to hike rates was “quickly approaching” (4).

US stocks and the dollar rose following the release of the minutes. The members of the Fed were not unanimous in their appraisal that December would be the optimum time to raise rates, and the Fed will be reactive to market conditions during the build up to the December meeting.

[1] The Financial Times “Fed minutes point to December rate rise”

[2] BBC “US Federal Reserve signals December rate rise more likely”

[3] The Telegraph “Fed sends strong signal that rates will rise in December”

[4] The Guardian “Interest rate hikes likely in December, Federal Reserve minutes reveal”