The September minutes of the FOMC confirmed a rate increase this year is more likely, although most market pundits think a rise before the US presidential election is out of the question. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” However, there was not much new in what the minutes said. As ANZ put it “Overall, the minutes provided little new news, and are therefore unlikely to result in the market taking the chances of a November hike any more seriously, but they also provided nothing to stand in the way of the current market moves, ie: increasingly pricing-in a December hike but being a little nervous about it.”
What was unusual was the level of disagreement within the committee. Almost everyone on the FOMC agrees a rate increase is coming but those who wish to delay think there is more spare capacity in the labour market and those who argued for a rate increase think the labour market is close to full employment. Three members want a 25bps increase immediately and they are worried FOMC credibility is being eroded. According to the minutes “several participants expressed concern that continuing to delay an increase in the target range implied a further divergence from policy benchmarks based on the Committee’s past behavior (sic) or risked eroding its credibility…” However, Westpac took the view signs of dissent would not change the Fed’s intended path for interest rates. “All in all, the above tension amongst FOMC members means little for our expectation that December will see a 25bp hike.”