US Federal Reserve's decision to hold interest rate was 'close call'

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The U.S. Federal Open Market Committee released today the minutes from its September meeting and, ultimately, decided not to hike interest rates.

In the wake of that decision, several voting members of the Fed's policy committee said that a rate hike would be needed "relatively soon", according to the minutes. He notes, "All in all, the minutes do not alter our view that the Fed is likely to tighten policy in December if the data continues to come in relatively constructive, and [if] global financial markets remain calm in the coming months".

"A couple of members emphasised that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the [Fed] had more scope to increase policy rates, if necessary, than to reduce them", the minutes said.

Is US central bank boss Janet Yellen already shying away from a December rate hike?

"Markets seem to be just a bit relieved to find little to suggest that the Fed would be ready to move as early as November which, in truth, would burnish their apolitical bona fides", said Tai Wong, director of base and precious metals trading for BMO Capital Markets in NY. Those seeking to raise rates have cited strong job growth and warned that delaying could require the Fed to raise them suddenly in the future, creating an unnecessary shock to the economy.

But perhaps the biggest relief for markets is the Fed's signal in the minutes that it is keeping a vigilant watch for any threat to the USA economic recovery.

The Fed also lowered its projected path of rate increases longer-term, pointing to lingering obstacles to a more vibrant economy, such as weak productivity growth.

"It's clear that the arguments to go on delaying rate hikes are getting thinner and thinner on the ground", said Brian Coulton, chief economist at Fitch Ratings.

Traders have priced in small odds of a rate increase next month as the meeting falls days ahead of the November 8 US presidential election.

According to the minutes, many policymakers noted that there were few signs of emerging inflationary pressures. They opined that a further delay in raising the target range would unduly increase the risk of the unemployment rate falling markedly below its longer-run normal level, necessitating a more rapid removal of monetary policy accommodation that could shorten the economic expansion.

Humana Inc was the biggest loser on the S&P, after the insurer said a United States government health department cut its quality rating on Humana Medicare plans, a move that could affect how much the government pays the company in 2018. That month the USA economy added 156,000 jobs even as the unemployment rate went up to 5%.

"Another two months of decent performance from the labor market should be enough to prompt a rate hike in December", he continued.

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