Fed Minutes Suggest Mid-Year Rate Hike at the Earliest

by Brian Dolan The minutes from the Dec. 16-17 FOMC meeting released today underscored that the Fed is in no hurry to start raising rates, with explicit indications that no rate changes are likely before late April. That sentiment conforms to current market expectations that the Fed is first likely to raise rates from the current target range of zero-0.25% at its June 17 meeting at the earliest. The Fed indicated that the use of the “patient” guidance in its last statement gave it flexibility, further suggesting a lack of urgency.

The Fed minutes also noted that many members saw downside risks to the US outlook from global weakness. That sentiment is reminiscent of language the Fed used in its October statement, which led to some market turmoil in the ensuing weeks.

Today's minutes suggest the Fed is content with the status quo and current market expectations and continues to bide its time, leaving room for the US recovery to gain further traction. The minutes today left markets mostly unfazed, with little change in Treasuries or stocks, suggesting market expectations were met.

The next major data point will be Friday’s release of Dec. US jobs data, where the consensus forecast is for a non-farm payrolls increase of 240K (prior +321K) and a further dip in the unemployment rate to 5.7% from 5.8%. Today’s ADP private jobs report showing a larger than forecast jobs increase (+241K vs. exp. +225K) augur well for Friday’s market NFP estimate.