**MNI POLICY: Fed Minutes: Rate Hike, IOER Tweak 'Fairly Soon'>

--Top Takeaways From Minutes Of the Nov 7-8 FOMC Meeting

By Jean Yung and Pedro Nicolaci da Costa

     WASHINGTON (MNI) - The following are the key points from the 

minutes of the Nov. 7-8 FOMC meeting released Thursday:

     --FOMC stayed on track to hike next month as the economy evolved as 

expected. Officials noted that another rate increase was likely to be 

warranted "fairly soon" if incoming data continues to meet or exceed 

expectations. "Almost all" officials reaffirmed the outlook for further 

rate hikes. 

     --A second technical adjustment to IOER will likely be appropriate 

"fairly soon" and could come before the December FOMC meeting "if 

necessary." If the fed funds rate "drifts higher before Committee's 

next meeting," an adjustment to IOER would aim to keep the rate "well 

within the target range." The minutes did not specify how many basis 

points IOER would need to fall relative to the upper end of the target 

range, but markets generally expect another 5 bp adjustment. 

     --A few officials "expressed uncertainty about the timing" of 

further rate increases, despite viewing them as appropriate. Only a 

couple officials noted that the fed funds rate "might currently be near 

its neutral level" and that further hikes could slow the economic 

expansion and put downward pressure on inflation and inflation 

expectations. 

     --The FOMC plans to edit language referring to its expectations for 

"further gradual increases" in coming meetings. Officials want to start 

transitioning to language that emphasizes evaluating incoming data in 

assessing the outlook and to help convey a "flexible approach in 

responding to changing economic circumstances." 

     --Officials are watching a slew of factors that may present 

downside risks and cause them to reassess their outlook: tightening in 

financial conditions, risks in the global outlook, slowing in 

interest-sensitive sectors of the economy, further tightness in labor 

markets, inflationary pressures. 

     --The current "floor" system for controlling interest rates is 

working well and would continue to be effective if QE was undertaken in 

future downturns. 

     --Despite uncertainty over the amount of reserves needed in a floor 

system, officials thought that reserve supply "could be reduced 

substaintially below its current level," signaling that balance sheet 

reduction can continue for a while. 

     --A transition to targeting OBFR (overnight bank funding rate) 

rather than the fed funds rate has several potential benefits and would 

not require significant changes to the way the FOMC conducts policy. 

Some officials suggested targeting a secured interest rate, or over the 

longer term, a mixture of secured and unsecured rates. 

     ** MNI Washington Bureau: 202-371-2121 ** 

[TOPICS: MMUFE$,M$U$$$,MAUDR$]