Dec Fed hike a done deal, suggest Fed minutes; will it hurt markets?

Many participants of Nov meeting thought a rate hike was likely to be warranted in near term

The US Federal Reserve is not convinced its works with the monetary policy is taking it anywhere near its inflation goal, but policy makers are in a hurry to jack up rates to continue with the gradual tightening process.

Minutes of the November Fed review released overnight almost seals a rate hike at the December 12-13 review.

This could have a bearing on emerging markets, including the Indian market, which has witnessed a return of FIIs of late, but fears of possible outflows might spook investor sentiment. Indian financial markets usually witness a slowdown in overseas portfolio inflows during the yearend holidays.

The minutes said many participants of November meeting thought another rate increase was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged. The Fed last review its money policy over October 31-November 1.

The participants thought low inflation might reflect not only transitory factors, but also the influence of developments that could prove more persistent. Some said there could be “increasing upside risks” to inflation as the labour market continued to tighten.

The minutes showed policymakers generally agreed that the economy was poised for strong growth. Several officials saw improved chances that the US Congress would pass significant tax cuts that would boost business investment.

“Participants expected solid growth in consumer spending in the near term, supported by ongoing strength in the labour market,” the Fed said in the minutes. “Many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term.”

“It was pretty well telegraphed that December is a done deal,” Omair Sharif, senior US economist at Societe Generale in New York told Bloomberg. “There’s really nothing in these minutes that tells you that the path for rate hikes will be different than what it looked like coming out of the September meeting. No one is jumping from one camp to another, they’re just digging in a bit more,” he said.

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