Minutes of the Federal Reserve's September meeting, released Wednesday, show officials were unanimous in last month's quarter-point rate hike, with "most" judging another increase likely appropriate by year-end. But the minutes showed no urgency to move again at the October meeting.
At the Sept. 15-16 FOMC meeting, all 19 top Fed officials voted to raise the federal funds rate by 25 basis points to a range of 3.75%-4.00% — the first Fed hike since July 2023.
Reuters reports officials split over the rationale: "many" framed the hike as risk management — insurance against stubbornly high inflation; "some" saw it as necessary given the economic outlook, guarding against demand-driven inflation; "a couple" described it as matching a higher estimated neutral rate of interest.
The minutes' own words: "Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end." Yet officials stressed they approach each meeting "with an open mind," with future decisions hinging on incoming data.
The September dot plot puts the median federal funds rate at 4.1% at the end of both this year and next. That arithmetic means one more hike in 2026, no net change in 2027, and rate cuts only beginning slowly in 2028.
Barron's notes the FOMC meets twice more this year: October 27-28 and December. New York Fed President John Williams said last week he expects just one more increase this year, "likely in December"; Dallas Fed President Lorie Logan is more hawkish, calling for another half percentage point.
The Wall Street Journal observed the minutes "didn't show that policymakers made an urgent case" for hiking again this month — consistent with recent comments from key officials that a follow-on move can wait until December.
Inflation remains the core worry. August headline PCE inflation was estimated at 3.8% and core PCE at 3.4%, with participants generally viewing inflation risks as "skewed to the upside." The Fed's frustration this summer: inflation defied hopes it would cool on its own.
ZeroHedge reports the minutes noted the AI investment surge is boosting investment and productivity prospects but could also feed inflation through stronger demand, rising input costs, and heavier financing needs — market participants likewise cited AI-related borrowing as pushing Treasury yields higher. Fuel-cost swings from the Iran war and tariff policies add further pressure.
The labor market, at least, looks close to full employment: unemployment at 4.1%, solid GDP growth, resilient consumer spending.
Market pricing runs more hawkish than the officials' own projections. MarketWatch reports derivatives traders now expect three more quarter-point hikes by next June, lifting rates to 4.5%-4.75%.
Russ Brownback, deputy chief investment officer for global fixed income at BlackRock, wrote in a client note that the Fed is "reinforcing its commitment to being vigilant — not necessarily embarking on a sustained tightening campaign."
All eyes now turn to the October 27 meeting: if data show energy and tariff shocks fading and inflation retreating, a December hike could evaporate. If demand-driven inflation is confirmed, the Fed still has ammunition.