FOMC minutes: Outdated due to the strong jobs report, December hike seems very likely

The minutes of the 27-28 October FOMC meeting were more or less as expected and thus the market reaction was limited. Due to the very strong jobs report for October a December hike is more or less a done deal and thus the FOMC minutes were in fact already outdated even before publication.

The minutes explain that the reason why the FOMC included a sentence stating that it would assess whether it was 'appropriate to raise the target range at its next meeting' was that both markets and analysts had begun to expect that December was no longer in play. The FOMC wanted to keep 'policy options open for the next meeting' as the October minutes say. A 'couple of members' were concerned that the signal effect would be too strong and that the sentence would be interpreted as a hike was very likely. The sentence was in fact interpreted hawkishly and moved market expectations significantly.  Another important change in the FOMC statement from October was that the reference that 'Recent global economic and financial developments may restrain economic activity' was removed. 

The minutes reveal that most FOMC members think the domestic part of the US economy has been quite robust to the negative external shock. That said, a few FOMC members think that 'the downside risks from abroad were still significant'.  The minutes repeat the message that 'a gradual increase in the target range for the  federal funds rate will likely be appropriate to support progress towards the Committee's dual objectives'. The future rate increases would be data dependent, i.e. the FOMC could increase/decrease adjustment speed along the way if data surprises on the upside/downside.  

The market reaction following the release was above all very muted. Pricing in the front of the US curve did not change and reactions longer out on the curve remained within a 1-2bp range closing the day unchanged. Lift-off pricing thus continues being 85% for December and a total of 75bp from now and till end-16.  As mentioned, the FOMC will raise the Federal funds rate target in December from 0.00-0.25% to 0.25%-0.50%. Four additional hikes are expected in 2016 corresponding to a hike every other meeting, i.e. in total five hikes from now until year-end 2016. This is in line with the latest Fed's median projection from September but more hawkish than market pricing