Nine Fed banks called for discount rate hike: minutes

The other reason to expect a possible hike today is that 5 of the 12 district banks voted for a rate hike at the September meeting, with the hawks being the district banks of Philadelphia, Cleveland, Richmond, Kansas City, and Dallas. It is pretty clear that the Fed will deliver a dovish hike.

“If you were on the side of Fed raising interest rates in December this will do little to change your mind from that happening”.

“Our concern would be that they then do not go ahead with the December [Federal funds] rate hike”. The Fed is not looking to raise rates to prevent the U.S. economy from over-heating, as inflation there is under 2%.

After keeping markets on the edge of their seats for the better part of the year, the United States Federal Reserve has signalled that it is finally prepared, rather belatedly, to lift interest rates for the first time in 10 years.

“This begs the question: has Australia’s conventional monetary policy reached its useful limits?”

Meanwhile, the USA dollar rose against the commodity currencies such as the Australian, the New Zealand and the Canadian dollars on the back of lower metal and oil prices.

“What I have said, and I still hold to this, is it was a close call”, Williams said of the bank’s decision to hold rates steady in October – a meeting when a rate increase was thought by many Fed watchers to be in play.

Delaying a rise “could increase uncertainty in financial markets and unduly magnify the perceived importance of the beginning of the policy normalisation process”, the minutes said.

Across the Tasman, the Australian dollar was higher yesterday, getting support from expectations the Reserve Bank of Australia would not be cutting the cash rate below 2%.

In the 2004-2006 cycle, the Fed, under Alan Greenspan and later Ben Bernanke, raised rates 17 times in quarter-point increments and at the time announced it expected to remove accommodation “at a pace that is likely to be measured”. However, as a number of countries resort to interest rate hikes, borrowing, spending, and consequently growth, could suffer. “There is a ceiling on how much more it can raise rates because of the appreciation of the dollar”, she said.

The initial move will be followed by a similar increase in the final months of next year. “That means that the moment the dollar appreciation would be too strong, the Fed would adjust its monetary policy”.

Restrained growth owing to the USA dollar would persist well into next year and spell continued weakness in the traded-goods-producing sectors, he said.