FOMC minutes consistent with December rate hike - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the reduced likelihood of Donald Trump becoming President is making the market more confident that the Fed will resume rate hikes in December offering support for the US dollar in the near-term.

Key Quotes

“The release of the latest FOMC minutes overnight from their September meeting signalled that the Fed was moving closer to raising rates. The decision to leave rates unchanged in September was a close call even amongst some of the officials who voted to leave rates unchanged and not just the three dissenters who voted in favour of a rate hike. Several officials thought that it would be appropriate to resume rate hikes “relatively soon”. 

Nevertheless, the minutes highlighted further that opinions on the FOMC are divided on a number of key issues. On the more dovish side, the minutes revealed a discussion over the benefits and costs of letting the economy run a little hot by allowing the unemployment rate to fall further below their longer-un estimate of the unemployment rate.

Many members also remarked that “there were few signs of emerging inflationary pressures”. It reinforces the view that the Fed will raise rates only gradually and will not be in a rush to quickly follow up a likely December rate hike. We expect the Fed to raise rates two more times next year encouraging only modest further upside for the US dollar in the year ahead. The US interest market is still not fully convinced that the Fed will raise rates at all next year assuming a rate hike is delivered in December of this year.”