FOMC Minutes: December Liftoff Is A Go - SEB

The key takeaway from today's FOMC minutes is that the majority of FOMC members that are occupying the center is set and ready to hike rates next month since "members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting, provided that unanticipated shocks do not adversely affect the economic outlook..." notes SEB Group.

"Incoming data is important too, and in that respect the October employment report may well have been the final nail in the December liftoff coffin. It must have been really encouraging that wage pressures are starting to build; what this is suggesting is that the unemployment rate still is a decent barometer of labor market slack which is a view we have consistently had. Moreover, inflation outside the food and energy complex was also pretty firm in October," SEB adds.

"There are several reasons not to delay liftoff much longer including the risk of creating more uncertainty in financial markets, avoiding financial excesses to build and the no-confidence vote on the economy a decision not to hike would convey. After the first hike, all eyes will be on the path and in that respect officials mostly agreed on a gradual accommodation removal," SEB notes.

So what does "gradual" means exactly? "According to our forecast, we will probably be looking at quarterly hikes or a tad less frequent than that which is more aggressive than the current market pricing suggests. The Fed will be data dependent going forward too and keep looking a lot on financial conditions where the dollar is a factor. Should financial conditions tighten too much when the normalization cycle gets underway, the Fed may well pause for longer," SEB argues.

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