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Fed Minutes Indicate Rate Hike "Relatively Soon"

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Most Federal Reserve officials expect it to become appropriate to raise interest rates relatively soon, according to the minutes of the November meeting of the Federal Open Market Committee.

The minutes noted that the expectation for a near-term rate hike is contingent on incoming data providing some further evidence of continued progress toward the Fed's objectives.

Some meeting participants argued that a rate hike should occur at the next meeting in December in order to preserve credibility following the committee's recent communications.

The Fed said a few participants advocated increasing rates at the November meeting, including voting members Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester.

Those preferring a rate hike viewed labor market conditions as at or close to those consistent with maximum employment and expected the recent progress toward the committee's inflation objective to continue.

The central bank said many also judged that risks to economic and financial stability could increase over time if the labor market overheated appreciably.

In contrast, some others judged that allowing the unemployment rate to fall below its longer-run normal level for a time could result in favorable supply-side effects or help hasten the return of inflation to the 2 percent objective, the Fed said.

The minutes echo remarks Fed Chair Janet Yellen made in testimony before Congress's Joint Economic Committee last week.

In prepared remarks, Yellen said the Fed has determined that an increase in interest rates could become appropriate "relatively soon" if incoming data provides further evidence of continued progress toward the central bank's objectives.

Yellen noted that the Fed must remain forward looking in setting monetary policy and cautioned that waiting too long to raise rates could require abrupt policy tightening to keep the economy from significantly overshooting the longer-run goals.

"Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability," Yellen said.

However, Yellen reiterated that the Fed expects the evolution of the economy will warrant only gradual increases in rates over time.

The Fed is widely expected to raise rates at the next FOMC meeting, which is scheduled for December 13th and 14th.

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