The Federal Reserve on Oct. 7 released minutes from its Sept. 15-16 monetary policy meeting, showing that most participants believed another increase in the federal funds target range before the end of the year could be appropriate. The record did not say whether that move would come at the next meeting or the one after that.
The Fed’s next two rate-setting meetings are scheduled for Oct. 27-28 and Dec. 8-9.
Most officials saw one more hike this year as possible
At the September meeting, the Fed voted 12-0 to raise rates by 25 basis points, lifting the federal funds target range to 3.75% to 4%. The minutes said that, looking beyond that meeting, 「most participants judged that a further increase in the target range for the federal funds rate before the end of the year could be appropriate」.
The document also said participants approached each meeting with an open mind, and that future decisions would depend on incoming data and what those figures implied for the economic outlook and the balance of risks. Many participants said a higher rate path reflected risk-management considerations, aimed at guarding against stronger-than-expected demand or renewed supply-side shocks that could keep inflation above target.
According to CNBC, 16 of the 18 officials who submitted economic projections expected one more rate increase this year. Chair Walsh has not submitted projections since taking office in May. At his September post-meeting press conference, he described the latest rate increase as removing 「a dose of accommodation」 from monetary policy.
Oil prices and AI investment cited as inflation pressures
The minutes said participants viewed inflation as still elevated and saw too little progress in bringing it down in recent months. Geopolitical developments that pushed up oil and refined fuel prices, along with a surge in AI-related investment, were listed as sources of inflation pressure.
Some participants said AI infrastructure buildout could cause aggregate demand to exceed aggregate supply over the medium term, adding to inflation pressure. Participants broadly saw inflation risks as tilted to the upside, and some said that risk had become more apparent in recent months.
Some officials also worried that inflation had remained above 2% for more than five consecutive years, raising the possibility that elevated inflation could begin to affect inflation expectations as well as pricing and wage decisions by businesses and workers. On employment, participants said the labor market was stable and close to full employment.
Officials discussed the rise in long-term yields
The yield on the 10-year U.S. Treasury recently climbed to its highest level since 2002. ChainCatcher reported on Oct. 7 that markets were waiting for the minutes at the time. The record showed that a small number of participants discussed possible reasons for the rise in long-term yields, including stronger economic growth data, expectations for increased AI-related borrowing, and geopolitical developments.
Many participants said overall financial conditions were still supporting economic growth even with yields moving higher.
CNBC also said Fed staff economists noted that part of the increase in yields may have reflected uncertainty tied to the Treasury Department’s announced and implemented bond buyback plan. Treasury Secretary Bessent announced in August an expansion of buybacks for outstanding long-dated Treasuries.
CNBC said an October hike looked less likely
CNBC also said recent inflation data and comments from several officials suggested another rate increase at the October meeting was unlikely. The Fed’s preferred inflation gauges showed core PCE rose 3% year over year in August, while headline PCE increased 3.4%, both below expectations.
A survey released by the Federal Reserve Bank of New York on Oct. 7 showed that consumers’ one-year inflation expectations rose to the highest level since May 2023.