Fed Minutes: FOMC Indicates Rate Hike ‘Warranted Soon,’ Signals Potential Shift in Pace

There wasn’t much of a reaction in the financial markets on Thursday to the minutes from the Fed’s early November meeting. This is probably because Fed Chair Jerome Powell stole most of the thunder the day before with his dovish remarks about the fate of future rate hikes. The minutes and Powell’s comments did have one thing in common, they both signaled a December interest rate hike.

According Reuters, almost all Federal Reserve officials at their last meeting agreed another interest rate increase was “likely to be warranted fairly soon,” but also opened debate on when to pause further hikes and how to relay those plans to the public.

The minutes of the November meeting showed Federal Open Market Committee policymakers had on their agenda a series of issues, ranging from a tightening of financial conditions, global economic risks, “and some signs of slowing in interest-sensitive sectors,” that had begun to sway their assessment of the economy.

Eventually, the FOMC determined that a December interest rate hike was appropriate. However, it did signal a potential shift in tone about the pace of future rate hikes.

Some policymakers agreed with the idea of further rate increases, but also “expressed uncertainty about the timing”. Fed officials also discussed how to communicate a possible change in their approach to any further hikes.

“Participants also commented on how the Committee’s communications in its post-meeting statement might need to be revised at coming meetings, particularly the language referring to the Committee’s expectations for ‘further gradual increases’ in the target range for the federal funds rate,” the minutes said.

“Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook; such a change would help to convey the Committee’s flexible approach in responding to changing economic circumstances.”

The FOMC also discussed how best to manage short-term interest rates in the future. This is important because it could influence the final target size of the Fed’s massive balance sheet.