Fed has completed every part attainable to keep away from shocking markets

The minutes of the latest Federal Reserve meeting released on Wednesday reinforced the rate hike view, providing broad, long-term support for the dollar.

As such, “Dec. 16 is a very live date for action and, frankly, given the stellar 271,000 jobs report since the October meeting, we would be astounded if they don’t raise rates finally”, says Chris Rupkey, chief financial economist at MUFG Union Bank in NY.

FOMC members held off in September, citing global market turbulence set off by concerns that China’s economy was slowing.

There was overwhelming consensus on one aspect: there would be a gradual trajectory of any future rate increases.

“Markets for a while now have discussed ad nauseam the spectre of USA borrowing rates rising as soon as next month that the topic doesn’t seem to be packing as much punch for the dollar”, said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

For this reason, if the US Fed does lift rates, it is likely to be at pains to emphasise that this is likely to be a slow, cautious process, with interest rates unlikely to get anywhere near back to their pre-GFC levels.

“Dollar gains are likely to be somewhat limited after the Fed starts hiking in December”, Ms. Harajli said.

However, there is one snag. Ongoing weakness in the eurozone and Japanese economies continues to put pressure on their central banks to increase stimulus, putting pressure on their respective currencies.

However, while a few officials felt that rate hike conditions “could well be met by the time of the next meeting” and the Fed’s commitment to consider a rate hike “at is next meeting”, there was a dissenting voice that encourages opposing sentiment.

“The economy is going to go into a boom period”, Bullard said, citing the low US unemployment rate, which is now 5 percent. “Today there was the interesting news that the South Africans have raised their interest rate to deal with the possibility that the Fed will do that”. It helps with New Zealand’s transition toward a more sustainable exchange rate and is more consistent with the sharp fall in dairy prices since 2014.

Also, a number of Fed policymakers were concerned that, having built up expectations of a hike for so long, not moving would send a disturbing message and erode the bank’s credibility.

Reserve Bank governor Graeme Wheeler has made no secret of the fact that he would like to see the US Fed get on with the job, which would strengthen the United States dollar and may result in a lower kiwi dollar.

They also noted uncertainty about whether economic growth was robust enough to withstand potential adverse shocks, given the limited ability of monetary policy to offset such shocks when the federal fund rate is near its lower bound.

Christian Hawkesby is a director at Harbour Asset Management.