US Federal Reserve signals December rate rise more likely

“I think the market is ready and comfortable for an increasing Fed funds rate”, said Alan Rechtschaffen, portfolio manager at UBS Wealth Management Americas in NY.

“In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates”, Fed Vice Chairman Stanley Fischer told the San Francisco Fed’s biannual Asia Economic Policy conference. Fed officials voted 9-1 in October to hold the rate near zero, where it has been since late 2008 in an effort to stimulate economic growth. But the October session also saw central bankers begin grappling with longer-term issues that may be relevant to the pace of subsequent rate hikes, including whether the US economy’s lower long-term potential means low interest rates will become a permanent norm.

The Federal Reserve, setting aside its habitual reticence, is issuing increasingly explicit warnings that it is likely to start raising its benchmark interest rate in December.

Despite further good economic news on Thursday that would give the Fed more grounds to raise rates, including a fall in new applications for jobless benefits, United States stocks failed to gain traction with the Dow down slightly in midday trading.

They also took note of the US economy’s resilience through a summer of financial market turbulence and felt that global threats had “diminished”.

“With a further widening of the U.S. Treasury/German bund yield spread, the odds of traders buying the United States dollars ahead of the 16 December FOMC meet and then selling once we get confirmation of the hike seems elevated, ” Weston said.

“Some others, however, judged it unlikely that the information available by the December meeting would warrant” a rate increase, the minutes said. A couple, however, were wary of telegraphing such a strong signal. The Fed has said it needs exactly that confidence before raising rates.

“Moreover, to the extent the evolving economic picture allows a process leading to a “resting place”, that point might be lower than in the past, as implied by a somewhat lower trend rate of economic growth”. “Indeed, the divergence in policies across central banks and financial tightening in the U.S. requires a cautious approach to ensure that the actions do not result in unnecessary tensions”, she said.

Minutes from the Fed´s October policy meeting showed board members confident the world´s biggest economy could withstand a rise next month as their concerns about the global outlook ease.