The Federal Reserve thinks it will be appropriate to raise interest rates “relatively soon,” according to minutes of its most recent meeting released Wednesday. This release covered the meeting that was held November 1-2, a week before the US election.
The minutes did not account for the postelection surge in Treasury yields and inflation expectations, which made a December rate hike all the more likely.
The market's stability and rise to new highs since then supports the case for a hike next month. Also, retail sales jumped to a two-year high, showing that consumer spending — the backbone of economic growth — remained strong.
This was the key passage from the minutes:
“Most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon, so long as incoming data provided some further evidence of continued progress toward the Committee's objectives. Some participants noted that recent Committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting.”
Some members of the Federal Open Markets Committee said keeping rates too low for too much longer could move investors to search further and wider for yield, mispricing assets like bonds and putting capital where it shouldn't be.
Traders expected the FOMC to vote against an interest-rate hike at the November meeting not just because of the political timing but also because there was no news conference accompanying the meeting. As of Wednesday, traders had priced in a 100% probability of a hike in December, according to Bloomberg's world interest rate probability data.
