Fed minutes show unanimous backing for September rate hike and a majority leaning toward another by year end

The Federal Reserve released the minutes of its September 15-16 Federal Open Market Committee (FOMC) meeting on Wednesday. They show a committee that agreed on September's increase and leaned toward another. "Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes said. The committee voted 12-0 to raise the target range to 3.75% to 4.00% after five straight meetings without a change, according to a summary by Raisin. Bloomberg reported that all 19 officials, voters and non-voters, supported the move.

Kevin Warsh, the Federal Reserve chair, described the September rate increase as a step to reduce stimulus for an economy that had performed more strongly than expected. Officials still called inflation "elevated." Some wanted more increases soon, and others preferred to wait. Since the meeting, a weaker-than-expected September jobs report and downward revisions to the two previous months have reduced the likelihood investors assign to an October move, Vantage Markets noted. The Economic Times, citing CME Group's FedWatch tool, put the odds of an increase at the October 27-28 meeting at 18% and the odds of one by December at 80%.

Gold fell when the minutes were released. Spot gold was quoted at $4,107.10 an ounce at 6:17 p.m. New York time on Wednesday, according to Forbes. By Thursday in Asia it had risen 0.4% from its two-month low earlier in the week, the Economic Times reported. The paper said investors were weighing Fed policy against geopolitical tension around Saudi Arabia.

Tightening is spreading beyond the United States. Economists at State Bank of India, the country's largest lender, said the Reserve Bank of India's next increase should be half a percentage point, which would take the repo rate (the central bank's main lending rate) to 6% from 5.50%, Mint reported. They argued that global conditions are likely to become more volatile soon.

The numbers show a wide gap between the Fed's policy rate and long-term market rates. The policy rate is 3.75% to 4.00%, while the 10-year Treasury yield was 5.34% on October 6. Lenders are demanding far more than the Fed's rate to commit money for a decade. A central bank can raise the price of credit, but it cannot add barrels of oil. Much of the current inflation comes from an energy supply shock, and rate increases act on credit demand.