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December Rate Hike Remains on Track, Fed Minutes Show

- Federal Reserve policymakers continued to support gradual interest rate hikes on the back of underlying strength in the labor market and steady inflation, keeping a December rate hike firmly on track, according to the minutes of its November meeting, published on Thursday.

"Members continued to expect that further gradual increases in the target range for the federal funds rate would be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term," the Fed's minutes showed.

The Fed kept its benchmark rate in a range of 2% to 2.25% at the conclusion of its two-day policy meeting on Nov. 8, but signaled a plan for further rate hikes in a bid to keep inflation in check.

While the minutes underlined the Fed's plans to continue with gradual rate hikes, some Fed members expressed uncertainty about the timing of rate hikes, the minutes showed.

"A few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases."

The minutes also highlighted continued debate among Fed members about how close interest rates are to neutral amid fears that an overshoot could slowdown the economy.

"A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations," according to the minutes.

The release of the minutes comes a day after Fed Chairman Jerome Powell that interest rates were "just below" neutral, dampening the optimism for a more aggressive rate-hike cycle.

Powell’s remarks represent a dovish tilt away from the hawkish tone that had sent equity markets tumbling last month, when he said rates were far from neutral and hinted at a possible overshoot.

The minutes did little to alter odds for December rate hike, with about 80% of traders expecting the Fed to raise rates for a fourth time this year on Dec. 19, according to ’s Fed Rate Monitor Tool.

Markets were encouraged by the minutes. After spending the day in the red, the S&P 500 moved into green territory following the release.

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