The Bank of England on Wednesday released the minutes of the last rate setting meeting at the start of November. To no real surprise the minutes recorded the vote remained 7-2 in favour of keeping rates where they are. The previous dissenters, Mr Macaffety and Mr Wheatley once again expressed the view that they would like to see a 25bp rise in interest rates. They believe inflation is below target due to the strength of the pound and low raw material costs. The other seven MPC members remain concerned about the level of inflation, sluggish wage growth, and the stagnating euro zone economy, and for these reasons were happy for rates to stay where they are. UK gilts hardly moved on the news, the 2-year maturity (most sensitive to interest rate expectation changes) rose 1bp. The general consensus amongst those quoted in the press is that the release of these minutes confirms interest rates will remain on hold for most of next year. One has to assume the two dissenters will not easily be moved from their present position, and do not share the Prime minister's view of the global economy.
Later in the day the Federal Open Market Committee (US rate setters) released the minutes from their last meeting. The comments from committee members reflected those of Mark Carney’s report last week, expressing concerns that inflation may stay low for some time. Despite these concerns there was little or no dissent to the ending of the quantative-easing program. There was little or no change to tone used by the committee, reiterating that they see rates low for some “considerable time”, maintain the language of previous minutes.
In the same way that there was little reaction to the release of the MPC minutes earlier on Wednesday, there was little reaction from bond or equity markets to the release of the FOMC minutes.
We have constantly argued, particularly earlier in the year when speculation grew stronger that the first rate rise could possibly take place before the end of 2014, that rates would stay low for a while longer than that. Rate rise expectations have now been pushed out to mid 2015, it will remain to be seen if even that is ahead of the game.