Fed minutes confirm December hike expectations; stocks stage strong rally

ANALYST TAKE: “Clearly the removal of the uncertainty around the USA rate hike is seen as being far more preferable to investors than keeping them at record lows for a little longer”, said Craig Erlam, senior market analyst at OANDA.

The center of the committee stuck with the view that inflation would likely return to the Fed’s 2 percent target over the medium-term and concluded that global risks had significantly faded since concerns over China roiled financial markets in August. Futures indicate the odds of higher rates by year-end are 66 percent.

But he said the Fed should be cautious as it ponders how fast to continue raising rates after an initial hike.

United States crude was down 1 percent at $40.29 a barrel, after dipping below $40 for a second day, with rising USA stockpiles serving as the most visible evidence of oversupply in oil markets. In commodity markets, gold added 0.6 percent to $1,077.20 an ounce having been at their lowest since early 2010.

The New Zealand dollar tacked on 0.91 percent, the Indonesian rupiah advanced 0.44 percent and the Thai baht traded 0.12 percent higher. Tokyo’s Nikkei 225 rose 1.1 percent to 19,859.81 and South Korea’s Kospi gained 1.3 percent to 1,988.91.

“The bill would severely impair the Federal Reserve’s ability to carry out its congressional mandate and would be a grave mistake, detrimental to the economy and the American people”, Federal Reserve Chairwoman Janet Yellen wrote in a letter to lawmakers.

“I believe it will soon be appropriate to begin a new policy phase”, he said, adding he will monitor economic data between now and a meeting on December.

Worries about a hike have also been tempered by previous comments from the bank that any increase would be gradual.

The global economic slowdown is still present but the officials of the U.S. Federal Reserve are more confident about the economic conditions in the country. “We expect they will hike in December but then proceed slowly after that and that has soothed markets”.

For all that, the fact that the Fed may be ready to start tightening is a positive sign for the markets, Mr Stirrat says. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. The euro rose (EUR=) 0.7 percent against the dollar. The currency is forecast to appreciate to $1.06 at the end of March.

The Fed’s chosen formula would be subject to a review by the Government Accountability Office, the auditing arm of Congress, and the GAO would also be required to audit the Fed any time the central bank chose to make changes to its rule.

“The “reasonable confidence” criteria was set up for the decision to ‘liftoff, ‘ and once we are beyond that point… we will have to think about our communications in tracking or monitoring inflation”, he told reporters after his speech.