The minutes of the FOMC’s September meeting added little to the market’s view of the timetable for U.S. rate increases. Financial markets reflected this and bond yields moved ever so slightly lower after the minutes were released.
However, for those in doubt of another rise in the federal funds rate this year, it is worth considering the following statement from the minutes. “Consistent with the expectation that a gradual rise in the federal funds rate would be appropriate, many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged.”
According to Westpac, this sort of statement “solidified December Fed hike expectations” but “at the same time revealed ongoing concerns about persistent low inflation.” A rate increase is obviously not a certainty. Not all members think a rate rise is necessary. Note the following statement. “A few participants thought that additional increases in the federal funds rate should be deferred until incoming information confirmed that the low readings on inflation this year were not likely to persist and that inflation was clearly on a path toward the Committee’s symmetric 2% objective over the medium term.”
According to CME Group, the probability of a rate rise in December on the day prior to the release of the minutes was 87% and this remained unchanged after the release of the minutes. In any case, 87% is a clear sign the market currently expects a rate rise at the FOMC’s December meeting. The release of the latest U.S. CPI figures at the end of this week will be the next piece of data to reinforce or change the market’s view.
The full text of the minutes can be found here.