Fed Minutes: Analysts mixed on Dec rate hike, USD under pressure

MINUTES from the US Federal Reserve's September meeting left analysts divided on Thursday about the expected pace of interest rate hikes, and the US dollar continued to face downward pressure.

The US dollar index hit a two-week low against a basket of currencies on Thursday after minutes published overnight Singapore time suggested that the Fed was open to another rate hike this year, but remained concerned about low inflation. The greenback touched 92.827, and was last down 0.2 per cent at 92.854, according to Reuters.

At the September meeting, the Fed left rates untouched at their current range of one per cent to 1.25 per cent, and forecast one final rate hike this year.

"December's meeting is still in play, with markets pricing in about a 75 per cent probability of a policy rate hike", global strategic adviser at Pimco, Richard Clarida said.

Similarly, Rabo Bank noted that on balance, many participants thought another hike is likely to be warranted if the medium-term outlook remains broadly unchanged.

"If the incoming data are not sufficiently weak to change the Fed's mind, we will shift our call for the next hike to December from 2018," the bank said.

Indeed, a number of the Fed's policymaking body have said that their decision to raise rates this year depends on whether economic data in coming months increased their confidence that the 2 per cent inflation target will be reached.

Meanwhile, Maybank noted that the minutes suggested a Fed divided on inflation and policy normalisation, which may "potentially scale back market expectations of Fed rate hike trajectory".

According to Deutsche Bank economist, Torsten Slok, the September Fed minutes were "confusing and inconsistent", Financial Times reported.

"On the one hand they argue that the slowdown in inflation may be more permanent. On the other hand the minutes argue that more rate hikes are needed and coming. The Fed is relying on their PhD economics inflation models, but several FOMC (Federal Open Market Committee) members are starting to question if raising rates in December is a good idea," he said.