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- Minutes from the Federal Reserve's October meeting suggested that "some participants" felt that the conditions for policy normalization process had already been met.
- The minutes added that "most participants" anticipated that conditions could "well be met" by December to justify a rate hike.
- Speaking to Benzinga, Allianz' Chief Economist Mohamed El-Erian said the Fed "signaled greater comfort" with the possibility of a December rate hike.
The Federal Reserve
released on Wednesday minutes from its October meeting.
According to the minutes, "some participants" felt that the conditions for a policy normalization process has already been met based on their assessment of the current economic situation and outlook. The minutes added that "most participants" believe all the necessary conditions to justify raising the target range for the federal funds rate in December "could well be met."
Nevertheless, the minutes noted that the actual decision would "depend on the implications for the medium-term economic outlook of the data received" from now through the next meeting. In addition, "some" members felt it is unlikely that economic data that will be released through the next meeting would justify raising the target range.
"A number of participants pointed to various reasons why the Committee should avoid a delay in policy firming," the Fed said in its minutes. "One concern was that such a delay, if the reasons were not well understood by market participants, could increase uncertainty in financial markets and unduly magnify the perceived importance of the beginning of the policy normalization process."
Another key concern, the report added, was the "increasing risk" of a buildup of financial imbalances after a "prolonged period" of "very low" interest rates. In addition, concern was raised over the possibility that the economy would lose some of its "momentum" or that inflation "might fail to increase as expected."
El-Erian: ‘Greater Comfort' With Potential December Hike
Speaking to Benzinga, Allianz's Chief Economist Mohamed El-Erian suggested that the Fed's minutes signaled "greater comfort" with the possibility of a December rate hike. He also agreed with most Fed officials who believe downside risks from the global economy have diminished since the last Fed meeting.
Some Fed officials stated it "prudent" to add policy tools if the Fed rate remains stuck "persistently" closer to zero. El-Erian said that such measures "remains to be seen" and it could be a "menu approach" rather than "a single big measure."
Finally, El-Erian argued that if the Fed were to delay a rate hike in December, they are "looking for prudential measures that would limit the risks of excessive market exuberance that would threaten financial instability down the road."
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