November FOMC Meeting Minutes: Fed Members Signal Urgency to Hike Rates

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Policymakers at the US Federal Reserve acknowledged that the case to hike interest rates continued to strengthen. Despite a split vote, many members were of the opinion that a rate hike should happen “relatively soon,” reaffirming that the central bank will hike rates in December, according to the November’s FOMC meeting minutes released yesterday.

“Some participants noted that recent committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting,” the meeting minutes showed.

The meeting minutes did not have much relevance, especially after Fed Chair Janet Yellen’s testimony to Congress just a week ago.

Fed officials worried on delaying rate hikes

Despite the consensus view of a rate hike, some members wanted to hold off hiking interest rates until they saw more progress on inflation and employment. However, others argued that the Fed was running the risk of delaying in rate hikes especially with the labour markets running close to full employment.

While the November meeting saw some members looking for more information to assess the economy, the US economic outlook since the November meeting has significantly changed.

“Most participants expressed a view that it could well become appropriate to raise the target range for the federal-funds rate relatively soon,” the Fed minutes showed.

Following the release of the FOMC meeting minutes, the 30-day Fed funds futures markets is assigning a 93.5% probability for a 25 basis point rate hike when the Fed meets on December 13 – 14.

30-day Fed Funds Probability: 93.5%
30-day Fed Funds Probability: 93.5%

Since the November FOMC meeting, the US economy has posted steady gains with the unemployment rate falling below 5% again and wages also seen rising. Inflation expectations continued to strengthen with the PCE price index rising 1.2% in September, which was the biggest increase in nearly two years.

Adding to the pace of economic activity was also the US presidential election which has further strengthened the case for inflation to rise faster than expected on promises that Trump will boost spending in certain key areas of the economy.

Spot gold drops 2 percent closing at a 10-month low

Although the Fed minutes did not add anything new for the markets, the US dollar continued to keep up its gains. Ahead of the Fed minutes, US durable goods orders data showed a strong increase in October.

According to official data, new orders for durable goods rose 4.8% in October beating the consensus estimates of 1.7%, while orders excluding transportation jumped 1.0% in October, rising above 0.2% forecasts. On a year over year basis, orders rose 2.1% while rising 0.3% excluding transportation. The jump in durable goods orders came with aircraft orders.

COMEX Gold Futures
COMEX Gold Futures

The better than expected report saw the US dollar gain momentum. Gold prices which flat for nearly three days broke down below the psychological support of $1200, closing yesterday at $1188.15.

The US dollar was seen posting another day of strong gains as a result but was only weaker against the British pound which gained on the back of new budget announcements.

USD: 1-Day Relative Performance
USD: 1-Day Relative Performance

Looking ahead, the markets will likely slow down into Thursday and Friday. US markets are closed on account of Thanksgiving holiday with Friday likely to see slow trading volumes.

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