Fed minutes: Further hike "warranted soon", debate opened on pause

Oscar PerryDec 01, 2018

Well, yes. However, in the same speech, Fed Chairman Jerome Powell reminded investors "there is no preset policy path" for the Fed. Fed officials agreed that it would be "appropriate" to take action before the December meeting if necessary to keep the federal funds rate "well within" the Fed's target range, according to the minutes.

Federal Reserve officials signalled they're adopting a more flexible approach in their gradual interest-rate increases after a likely December hike, as they try to sustain a USA expansion that may become the longest on record next year.

Just on Tuesday, Fed Vice Chair Richard Clarida, in a speech to numerous same economists and investors in NY, used precisely the same language to describe the policy rate as "just below" the range for neutral.

The minutes of the Fed's November 7-8 meeting showed that officials expressed concerns about a variety of threats, including the impact of tariffs, a slowing global economy and tightening financial conditions amid falling stock prices.

Why should he? The data for the U.S. economy remains strong.

"Recent public comments suggest Fed officials are amenable to parking the fed funds rate near neutral, which most FOMC participants estimate near 2.9 percent to 3 percent, and then pausing to assess the health of the economy as it adapts to less accommodative policy".

He offered nothing to dispel market expectations of another rate increase at the Fed's policy meeting on December 18-19. With previous hikes in March, June, and September, one more rate hike this year would put 2018's rate of increases on par with 2006, the last year the Fed increased rates prior to the crash.

The US central bank chairman has repeatedly tried to advise investors not to read too deeply into the Fed's economic forecasts, saying policymakers often don't have the ability to see that far into the future and decisions are formed based on incoming data from markets, the economy and business contacts.

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The US central bank has been on a hiking path, raising the US benchmark rate about once every three months.

But minutes from the Fed's November 7-8 policy-setting meeting, released on Thursday, as well as remarks over the last two weeks, point to a reassessment of the Fed's longstanding promise of "further gradual rate increases" that would extend two years of almost uninterrupted quarterly tightening.

"Powell took pains to state that the FOMC's rate projections are based on their best assessments of the economic outlook", Kevin Logan, chief USA economist for HSBC wrote in a Wednesday note to clients, referring to the policy-setting Federal Open Market Committee. "We have to be thinking about how much further to raise rates and the pace at which we will raise rates".

Tucked in his speech, Powell said that rates are "just below" the so-called neutral range, the level that central bankers believe will neither accelerate nor slow economic growth - a subtle two-word shift from comments he made in October suggesting that interest rates are still "a long way" from neutral. Last month, Mr Powell said the Fed still had a "long way" to go before it reached that equilibrium.

"Given the volatility you've seen recently, it's probably quite reasonable to expect a little bit of a bounce".

"There is a great deal to like about this outlook", Mr. Powell said. Three of those increases have been under Powell.

On Wednesday, Powell also emphasised these uncertainties.

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