The minutes of September’s Federal Open Markets Committee (FOMC) were released and they revealed little in the way of new information. They confirmed more than a few members believed the conditions necessary for a rate increase had been met or would be met soon. Countering this view was a group of members who wanted further confirmation of labour market improvement, economic resilience and rising core inflation before moving to higher official rates. Westpac noted the unusually high number of references to the US dollar and said the absence of “robust” US wages growth meant global developments were seen as much more significant for the inflation outlook.
On the whole, the FOMC expects economic growth to remain “above its longer-run rate over the next two years and lead to further improvement in labour market conditions.” While inflation was expected to remain subdued, more of the FOMC members saw “the risks to inflation as tilted to the downside.” However the minutes also point to the rise in core PCE, the Fed’s preferred inflation measure. “Since January when the steep drop in energy prices ended, core PCE prices had risen at an annual rate of 1.7%, closer to the Committee’s objective”
Janet Yellen is seen from her speeches in late September as being supportive of a 2015 rise and Westpac sees the minutes as confirmation her view represents the consensus. The bank sees “no chance” of October 29 move but a rate rise in December is likely “barring a marked deterioration in the pulse of inflation and US domestic activity.” Commonwealth Bank said its view is the Fed rise would come in December “remains intact, though weak payrolls data over the past two months casts doubt on even that timetable.”