Economy

FOMC Minutes Appears Set for December Rate Hike

Paul Ausick

Published: November 18, 2015 2:32 pm

Last Updated: January 13, 2020 5:02 pm

The Federal Reserve on Wednesday afternoon released the minutes of the October 2015 meeting of its Federal Open Market Committee (FOMC). The big news may be that the committee has teed up December date to raise interest rates:

During their discussion of economic conditions and monetary policy, participants focused on a number of issues associated with the timing and pace of policy normalization. Some participants thought that the conditions for beginning the policy normalization process had already been met. Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting. Nonetheless, they emphasized that the actual decision would depend on the implications for the medium-term economic outlook of the data received over the upcoming intermeeting period. Some others, however, judged it unlikely that the information available by the December meeting would warrant raising the target range for the federal funds rate at that meeting.

The FOMC also changed the way it framed its statement. Rather than phrasing the post-meeting statement in terms of how long it would maintain its current interest rate target range, the committee chose to indicate that a raise at the December meeting would “assess both realized and expected progress” toward its twin objectives of maximum employment and inflation of 2%:

[T]his 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, provided that unanticipated shocks do not adversely affect the economic outlook and that incoming data support the expectation that labor market conditions will continue to improve and that inflation will return to the Committee’s 2 percent objective over the medium term. Members saw the updated language as leaving policy options open for the next meeting.

The FOMC has indicated that its decision will be data-driven, and that may mitigate somewhat the stronger language pointing at a hike to the policy rate. In the report of the meeting the FOMC noted that the Fed staff continues to project real GDP expansion through 2018 at a somewhat faster-than-normal pace supported primarily by consumer spending. At the same time inflation projections indicate that by the end of 2018 inflation will still be below the 2% target. The risks to the forecasts for GDP and inflation are “tilted to the downside,” reflecting the staff’s assessment:

[N]either monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks. Consistent with this downside risk to aggregate demand, the staff viewed the risks to its outlook for the unemployment rate as tilted to the upside.

Only Atlanta Fed president Jeffrey Lacker voted against the FOMC’s decision.

The FOMC’s next meeting is set for December 15th and 16th.