Fed to hike rates relatively soon amid growing concerns over bank’s credibility
Federal Reserve leaders appear poised to raise interest rates amidst growing concern about the bank’s credibility.
“Some participants believed that it would be appropriate to raise the target range for the federal funds rate relatively soon,” if the economy stays on track, according to minutes released Wednesday from the Fed’s meeting in late September.
The Fed appeared divided at its September meeting when it decided not to raise interest rates. Three of the 12 voting members on the Fed’s committee voted in favor of raising rates — an unusually high amount of dissent.
The Fed’s next two-day meeting is November 1-2. However, almost no one believes the Fed will raise rates one week before the U.S. election, even though Fed Chair Janet Yellen stresses that the election doesn’t influence its decisions.
Wall Street bets there’s a 10% chance of a rate hike in November, but it’s betting on a 63% chance of a December rate hike, according to CME Group.
The Fed minutes also noted: “Several participants expressed concern that continuing to delay an increase in the target range…risked eroding its credibility.”
Translation: We could have a credibility problem if we don’t raise rates soon.
The word “credibility” appeared four times in the minutes from the September meeting. In every previous meeting this year it was either never mentioned or only mentioned once. For years, most Fed leaders have dismissed any notion of a credibility problem.
Many economists and investors already believe the Fed has a credibility problem. At the beginning of the year, Fed leaders projected raising rates four times. But after a slew of setbacks — low oil prices, fears of China’s downturn and a slight hiring slowdown in the U.S. — the Fed has now dialed down to one rate hike.
