Fed opened the door wider for a rate rise soon - Commerzbank

The US central bank left interest rates unchanged this week, as expected, but also opened the door wider for a rate rise soon, said Dr Christoph Balz, analyst at Scotiabank. 

Key Quotes

“This supports our forecast of a rate hike at the next meeting in December. Against the backdrop of slightly rising inflation pressure, the case for a rate rise has “continued to strengthen” from the central bank’s perspective. The decision-makers now just need “some” further evidence. The tone was therefore a little sharper compared to the last meeting.”

“The doves in the FOMC are probably still not entirely convinced about the necessity of higher interest rates, but without a rate step in December calendar year 2016 would pass without any increase at all. The move at the end of 2015 would then look like an isolated event and provoke the question of whether it wasn’t an error.”

“If the Fed waits much longer with rate hikes, it will not be able to communicate credibly that monetary policy is on the way to normalisation which could encourage new asset bubbles. At the same time, the doves have probably recognised that 25 basis points here or there do not change the economic course dramatically and that the “costs” of a rate rise from their perspective are therefore low.”