FOMC voters weren’t ready for a rate hike in October but they sensed that conditions could be met in December. This is the inspiration for the unusual reference in the October FOMC statement to the upcoming importance of the December meeting, a reference that together with the very strong October employment report are pointing strongly to a December rate hike.
And the odds for a hike shouldn’t shift that much following yesterday’s minutes. The Fed’s two policy goals, which are stated and restated again and again in the minutes, employment does look like it’s improving. The second is less certain, as most readings on inflation are not moving with any certainty toward the Fed’s 2 percent target
And the minutes definitely offer very dovish overtones from some non-voters at the meeting who were concerned that the addition of the reference to the December meeting was too strong, adding that it was unlikely that economic data would warrant a lift-off in December. Several even suggested consideration of new monetary stimulus if the economy fizzled.
Investors reacted by increasing the odds for a rate increase next month to 72%, from 64% on Tuesday, based on interest rate futures prices.
The dollar pulled back in Asian trading on Thursday as investors took profits following its rise to seven-month highs, as Federal Reserve officials confirmed the likeliness of a September rate hike
The dollar index, was down about 0.4% at 99.217. It hit a high of 99.853 overnight, closing in on its 12-year peak of 100.39
Looking forward today, the main event will be ECB minutes from their last meeting. The ECB will release the minutes of its latest policy meeting later in the session, which investors will scan for clues to what the central bank might do in December.