By Arionne Nettles
The minutes of the Federal Reserve’s policy meeting last month made one thing very clear: that the Fed is poised to raise interest rates in December.
Minutes released Wednesday from its October meeting showed that a majority of Fed officials were nearly ready to vote for an increase in the federal funds rate, the rate banks charge one another for overnight funds.
A hike in the rate has been highly anticipated, as it’s been held near zero since 2009’s financial crisis.
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“Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting,” according to the meeting minutes.
Diane Swonk, chief economist at Mesirow Financial, said that an interest hike is likely happening.
“Data released since the meeting pretty much ensures that the Fed will attain liftoff in December,” Swonk said. “Signs that wages and inflation may be firming push the bulk of the committee past the starting line for liftoff.
The minutes showed three reasons why the Fed might be ready now.
The job market is stronger.
Fed officials discussed the need to see a resumption in strong job growth following a slowdown in August and September. That happened a few weeks later, when the October jobs report showed the strongest job growth in almost a year, a 2.5 percent increase in wages from a year ago, and a 5 percent unemployment rate — the lowest since 2008.
Inflation is getting closer to its target.
The inflation goal for a healthy economy is 2 percent, according to the Fed. It uses the personal consumption expenditures index, and this measure rose 1.3 percent from a year ago, excluding volatile food and energy.
A small increase now will prevent a larger increase later.
Fed officials emphasized that they want the federal funds increases to be gradual. In order to slowly raise the federal funds rate in small increments, the first rise in rates needs to be soon.
“…Beginning the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow,” the meeting minutes said.
The Federal Open Market Committee, the Fed’s policy-making arm, meets eight times annually to discuss the nation’s monetary policy. Its next meeting is scheduled for Dec. 15-16.
