Federal Reserve policy makers inserted language into their October statement to stress that “it may well become appropriate” to raise the benchmark lending rate in December and largely agreed that the pace of increases would be gradual, minutes of the meeting showed.
“Members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting,” said minutes of the FOMC’s Oct. 27-28 meeting, released Wednesday in Washington.
A majority of Fed officials have signaled they expect to raise interest rates this year for the first time since 2006. That message was underscored when policy makers added a reference to the “next meeting” on Dec. 15-16 in their October statement, in connection with their assessment on when to act.
U.S. stocks rose, while Treasuries erased losses, with the Standard & Poor’s 500 Index extending gains and the dollar advancing as the Fed reinforced views that the U.S. economy was strong enough to handle a rate hike.
“Dec. 16 is a very, very live date for action,” said Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The winds of change have finally come to the Fed after all these years. Rates are going up. In 2015. Bet on it.”
A “couple” of voting policy makers had qualms that the wording change “could be misinterpreted as signaling too strongly the expectation” for December liftoff, according to the report.
Participants in the meeting “generally agreed,” the minutes said, “that it would probably be appropriate to remove policy accommodation gradually.”
“It was noted that the beginning of the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow,” the minutes said.
The minutes broke policy makers into three camps, with some saying economic conditions necessary for tightening policy “had already been met,” while “most participants” estimated that their criteria “could well be met” in December.
“Some others, however, judged it unlikely that the information available by the December meeting would warrant” a rate increase, the minutes said.