Fed likely to move in December - FOMC minutes review

The minutes of the 27-28 October FOMC meeting suggest that a December rate hike remains rather likely. Thus most members of the committee said at the meeting that conditions for a rate hike "could well be met" by December.

Overall, the minutes of the 27-28 October FOMC meeting suggest that a December rate hike remains rather likely. Thus most members of the committee said at the meeting that conditions for a rate hike "could well be met" by December, provided economic data continue to improve and that "unanticipated shocks" did not get in the way. Fed officials decided to change the wording of the October FOMC statement to ensure their options were open for a move in December.

"We do acknowledge that overall US financial conditions according to some measures are now back at the same levels as when the Fed softened its tone at the September FOMC meeting . However, because Fed officials now seem to feel more sanguine about global risks and more optimistic about incoming domestic data, we think it would take a significant further tightening for the Fed to soften again at the 15-16 December FOMC meeting, delaying the first rate hike yet again", says Nordea Bank.

The next key event for Fed policy expectations is Fed Chair Yellen's congressional testimony on 3 December, the day before the November jobs report. Given the strength of the October jobs report, released after the October FOMC meeting, the November report would probably have to be extremely weak for the Fed to hesitate in December.

"We continue to anticipate a Fed rate hike in December and believe that rising inflation pressures will prompt the Fed to raise rates more aggressively next year, with the fed funds target range reaching 1.25-1.50% by end-2016, roughly twice the tightening compared to current market pricing", added Nordea Bank.