Fed Minutes Suggest Rate Hike Still on Table Despite Soft Data

The US Federal Reserve's rate-setting Federal Open Market Committee (FOMC) has shifted towards a more hawkish stance, according to the latest minutes. This is evident in the three votes to raise rates in July, with Governor Christopher Waller stating that higher rates could be required in the 'near term'.

Philadelphia Fed President Anna Paulson also expressed her openness to raising rates, suggesting that the 9-3 vote in July could become a 7-5 split next month. The FOMC's language suggests more than three officials may be voting for a rate hike at the September 15-16 meeting.

The minutes show 'several participants' favored a 25 basis point increase, while 'many participants' said policy tightening would likely be needed to get inflation back down to the Fed's 2% target. However, historical precedent suggests a hike next month is unlikely, with only two instances of this occurring in the last 89 FOMC meetings.

Interest-rate futures markets also suggest a hike next month is unlikely, but with roughly one-in-three odds, the probability is not negligible. The political calendar may also influence the Fed's decision, with some members potentially avoiding rate hikes ahead of the November midterm elections.