Fed Minutes Suggest Rate Hike Still on Table for September Meeting

The US Federal Reserve's rate-setting committee has shifted in a more hawkish direction, according to the minutes of their last meeting. This was evident by the three votes to raise rates in July, which was the biggest single dissenting bloc vote on the fed funds rate since September 2016.

While recent inflation and employment data have weakened the likelihood of a rate hike next month, the minutes suggest that a hike cannot be ruled out. 'Several participants favored an increase of 25 basis points' at the July meeting, while 'many participants' said policy tightening would likely be needed to get inflation back down to the Fed's 2% target.

Only 12 of the FOMC's 19 members vote at any given meeting, so some officials indicating a readiness to raise rates might not be current voters. However, Governor Christopher Waller and Philadelphia Fed President Anna Paulson have both indicated they are open to raising rates, which makes it possible for the September meeting to become 'live'.

Historical precedent argues against a hike next month, but with roughly one-in-three odds in interest-rate futures markets, the probability is not negligible. The political calendar is also a consideration, as Fed members may not want to leave themselves open to accusations of political interference by raising rates just days before the November midterm elections.