There have been signals coming out of the Federal Reserve that there is going to be a hike in interest rates in the month of December, despite there being a sustained debate when it comes to current price levels.
It is believed that a hike in rates will be warranted in the near future, with minutes from their October meeting also highlighting concerns of some key policymakers regarding financial imbalances.
The minutes of the Federal Reserve’s meetings always throw up some interesting points and markets tend to be sensitive to some of the topics that are up for discussion following the release of these minutes.
Tepid levels of inflation have created division amongst members as to what policy path is the best one to be taken, as well as discussing their concerns when it comes to financial stability.
It was the general view that an increase in rates in the near term was likely once their information continued to showcase that in the medium term the economic outlook was relatively unchanged.
At the meeting itself, the rates were kept the same, but investors are preparing themselves for a potential rate hike in the month of December as the Fed continues with their attempt to gradually tighten. Unemployment levels hitting 17-year lows but inflation continues to lie at low levels below their target of 2%.
The minutes showcased how the officials are still confident when it comes to the labour market and trending economic growth, but some of them are trying to see some stronger signals that prices are going to increase in the near future.
Some of them even want inflation to be increasing before there is another rate increase, which has been an ongoing topic of division when it comes to the Federal Open Market Committee who ultimately decides on the policies.
Following the release of these minutes, stocks remained at lower levels, with the dollar decreasing and Treasury two-year note yields also falling.
For the upcoming year, many officials have projections that there will be a total of three increases in rates, but of course, if economic data does not reach the expectations of the Fed, this number could go out the window.
This is why many analysts are closely watching to see if any officials in the central bank are going to decrease their outlook on the economy when it comes time for them to submit their projections for the economy in the next meeting of the Fed between the 12th and 13th of December.
Following the September meeting, most investors believed that there would be a rate increase before the end of the year, so nothing much has changed in that sense as the latest minutes did not throw up any surprises. People are not changing their positions from one side to the other, they are simply entrenching themselves a bit deeper in the position in which they are in.
In 2017 to date, the average level of inflation has been 1.6% when you disregard the volatile fuel and food prices, with it only reaching 1.3% in September, which remains below the Fed’s target levels.
