Fed minutes keep December rate hike expectations alive

Market sentiment is up on Thursday after the publication of the FOMC minutes on Wednesday hinted that the U.S central bank was still receptive to lifting rates next month.
The FOMC minutes from the Fed’s latest meeting in October indicated that most policymakers were in favor to raise rates in December provided U.S. economic data continued to improve and there were no “unanticipated shocks”.

Most FOMC members said at their October 27-28 meeting that conditions for an increase in short-term interest rates “could well be met” by the next gathering on December 16, as the Fed prepares for the possibility for the first upward move since 2006.

Interest rate futures imply that there is a 68 per cent chance that the Fed will vote to tighten monetary policy when it meets in mid-December, and the two-year U.S. Treasury yield has climbed as investors begin to anticipate the move. The two-year yield was just 0.55 per cent in mid-October.

However the minutes also exposed continued divisions among Fed policymakers, with some warning that it was “unlikely” that information available by December would support an increase. They questioned whether the US economy was strong enough to withstand a sudden setback given the Fed’s limited monetary firepower at a time of ultra-low rates.

The U.S. Dollar Index which gauges the strength of the U.S. currency against a basket of six other major currencies, reached a seven-month high of 99.96, before closing on Wednesday at 96.66.

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