Fed likely to raise rates in December but concerns mounting: minutes

The Federal Reserve announced the results of its annual bank stress tests, showing the 18 largest financial institutions would suffer losses but still have enough of a capital buffer to continue operating (AFP Photo/Brendan Smialowski)

Washington (AFP) - US central bankers believe another interest rate hike is due "fairly soon," boosting widespread expectations the Federal Reserve will raise lending costs next month, according to meeting minutes released Thursday.

But policymakers may be divided over what to do after that, with some worried that raising rates after December could "unduly slow" the American economy, just as signs of vulnerability are beginning to gather, the minutes showed.

The minutes from the rate-setting Federal Open Market Committee's November 7-8 meeting showed a rising level of uncertainty in the central bank about the near future.

The Fed members' comments initially appeared to comfort investors. Major Wall Street indices turned positive shortly after the announcement but that rally soon fizzled, with stocks ending in the red.

Stocks had also rallied Wednesday after Fed Chairman Jerome Powell said interest rates were already close to estimates of "neutral" -- the rate which neither accelerates not restrains economic activity -- meaning they might not have to rise much higher.

But policymakers also say they may soon begin to give the public fewer clues about their plans, striking language from future statements about "further gradual increases" and instead keeping a close eye on developments in the economy.

With last year's deep tax cuts and fiscal stimulus from Congress, the world's largest economy continues to hum, producing steady job growth and driving the unemployment rate to its lowest level since 1969 even as inflation remains right at the Fed's two percent target.

Rising wages and robust consumer confidence mean there is a good chance that GDP growth will remain strong before slowing in line with more recent trends, some participants said.

As a result, "almost all" Fed members said a rate hike "was likely to be warranted soon."

But some expressed "uncertainty" about how long the Fed should wait before raising again.

And a "couple" said the Fed might be near the neutral rate, meaning more rate hikes "could unduly slow the expansion," driving down inflation.

October's Wall Street sell-off and a rise in bond yields tightened financial conditions while some sectors most sensitive to interest rates, such as the housing sector, had already begun to slow.

But other participants preferred a wait-and-see approach, noting that the future held "upside" and "downside" risks, such as slowing global growth on one hand and faster inflation on the other.

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