Fed’s September Rate Decision Was a Close Call, Minutes Show
This seems like bad news for the stock market, but investors, for the time being, have chosen to ignore it.
The U.S. Federal Reserve decision to hold the benchmark interest rates steady last month was a close call, with some policy-makers favoring the hike “relatively soon,” according to the minutes of the Fed’s September meeting, which were released today.
“Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected,” stated the minutes from the September 20-21 gathering in Washington. “It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.” (Source: “Fed Minutes Point to Rate Hike ‘Relatively Soon’,” Bloomberg, October 12, 2016.)
Equity markets took this information as business as usual, with the S&P 500 and the Dow Jones industrial average indexes maintaining their gains, while the U.S. dollar extended its rise.
The Fed left the benchmark lending rate unchanged in a range of 0.25% to 0.5% for the sixth straight meeting last month. Despite a hawkish stance by some U.S. policy-makers, the likelihood of a rate hike is very slim at the Fed’s November meeting, just before the U.S. presidential election.
The majority of the market participants believe that the Fed policy-makers will tighten its monetary policy in December. The odds of such a move are about 70%, according to the CME Group Inc’s (NASDAQ:CME) “FedWatch.”
Strong employment gains in September and a low inflationary environment are the two opposing forces that have been in play in recent months. Fed officials kept rates unchanged this year as the U.S. economy showed mixed signals on the local front. While the job market showed signs of strength, inflation remained muted, below the central bank’s two percent target. Global economic weakness and turmoil in Europe following Britain’s decision to leave the European Union also played a big role in the Fed’s decision to delay its rate increases.