The minutes of September 25-26 FOMC meeting indicated that Fed is still on track for its rate hike cycle. And based on the strength of the economy, policymakers are leaning more towards bring interest rate into mildly “restrictive” levels down the road.
The minutes said “participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions and inflation near 2 percent over the medium term.”
More importantly, the minutes also revealed that “a substantial majority of participants expected that the year-end 2020 and 2021 federal funds rate would be above their estimates of the longer-run rate.” Also, “a few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level”.
However, a “couple” of FOMC members, meanwhile, argued against a restrictive policy “in the absence of clear signs of an overheating economy and rising inflation”. But such argument for now, is seen by economists as precautionary. Fed is still some way off the neutral level.
Fed raised federal funds rates by 25bps to 2.00-2.25% on unanimous vote at the September meeting.
