US Fed minutes point to rate hike coming 'relatively soon'


The dollar climbed for a third day versus the euro before the release of minutes of the Federal Reserve's latest policy meeting that may provide clues on the path of U.S. interest rates.

The standard way of thinking of interest rates is that low rates incentivize lending and spending instead of saving.

Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren favored a rate hike during the September meeting.

The Fed hinted strongly at an imminent rate hike, though, issuing a chart showing that 14 of the committee's 17 participants believe the "appropriate target range" for the interest rate will be higher than 0.5 per cent before the end the year.

We do not change our Fed call based on these minutes, as they confirm more or less what we already knew due to the many Fed speeches since the last meeting.

Treasury yields, including the most Fed sensitive 2-year yield inches higher suggesting a rate hike this year remains on the table. Harker said that he supported a rate increase in September and would like to see the USA central bank gradually raise rates going forward. They assigned a 17 percent chance to a move in November, when the Fed meets a week before the USA presidential election.

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Among the reasons for the delay were the continued slack in the labor market and inflation, which continues to run below the FOMC's 2% objective. While some of those members still wanted to see further evidence of improvement, the rest were concerned with hiking rates without clearly communicating the committee's intentions ahead of time.

The majority of the members also agreed that the risks from Brexit "had receded".

The committee will continue to closely monitor global economic and financial developments.

One FOMC member said that the prolonged period of low interest rates was hurting pension funds and endowments, and that this may be hurting the economy.

The Labor Department reported last week that the U.S. economy created 156,000 jobs in September while the unemployment rate actually rose a tenth of a point to 5.0 per cent as more job seekers returned to the hunt for work. Though the minutes did not provide any clear indication regarding the timing of the next move, December seems likely and even market pricing indicates the same. "Our long-term forecasts now include one hike in 2017, followed by two hikes in 2018&2019 respectively", said DNB markets in a report. "That's allowing us to grow payrolls at a pretty decent clip without pushing down the unemployment rate". The participation rate is the proportion of working-age people employed or actively looking for jobs. "It is tough to predict exactly where rates will be in any given day, week, or month, but the general consensus from here is that we are likely to see a gradual movement upward".