Wednesday 12 October 2016 7:07 pm

US Federal Reserve: Rate hike delay was "close call"

The US dollar crept higher this evening after the Federal Reserve revealed it is on course to hike interest rates by the end of the year.

Published this evening, minutes from the Fed's most recent meeting of the Federal Open Market Committee (FOMC), held in mid-September showed rate-setters acknowledged it was a "close call" not to vote for a rate rise. Nevertheless, a majority of the 10-strong FOMC, headed up by chair Janet Yellen, thought a hike would be needed "relatively soon".

The minutes said: "It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labour market and inflation."

US interest rates are currently stuck in their target range of between 0.25 per cent and 0.5 per cent.

Three members of the FOMC, Esther George, Loretta Mester and Eric Rosengren, did vote for an interest rate rise in September – the most dissenters since the Fed hiked rates for the first time since the financial crisis last December.

Even the remaining seven voting members of the FOMC showed signs they were getting impatient, with many acknowledging it made little sense to keep rates at their extraordinary level when the economy was performing so strongly. Some said the Fed risked "eroding its credibility" by waiting too long for the next interest rate rise.

"Among the participants who supported awaiting further evidence of continued progress toward the committee’s objectives, several stated that the decision at this meeting was a close call", the Fed stated. 

There was no mention in the statement of the upcoming US Presidential Election, although many Fed-watchers believe possible market volatility or uncertainty over where economy policy would head under a Donald Trump presidency could have caused the FOMC to hold off until after the 8 November ballot.

Read more: The real US and UK interest rates

Markets are divided as to whether Yellen will advocate an interest rate rise before the end of the year, with futures prices putting the prospect of a hike by the end of the year at around 66 per cent, up from nearly 50-50 last week.

Ian Shepherdson, chief economist of Pantheon Macroeconomics said: "The hawks are still in the minority [but] it won't take much, we think, to tip the committee into a majority in favour of tightening."

The FOMC next meets just six days before the US Presidential Election, although few expect the central bank to shift policy at that meeting, meaning all eyes are on the mid-December get-together of the rate-setters.