Minutes of the Federal Reserve's September meeting, released Wednesday, October 7, show that most policymakers expect another interest rate hike by the end of 2026. According to CNBC, the document gives no indication of exactly when the next move would come.

What the Minutes Said

The key line states that "most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end." The September 15-16 meeting ended with a unanimous 12-0 vote to raise the benchmark rate by 25 basis points to 3.75%-4.00%. It was the first hike since July 2023, and every participant backed it. Officials stressed that future decisions would depend on incoming data.

Why the Fed Is Concerned About Inflation

  • Inflation is above target: the Fed's preferred PCE gauge is well above the 2% goal and has been for more than five years. Reports differ on the August figure, from about 3.4% headline (3% core) to a staff estimate of 3.8%.
  • Strong momentum: several participants said underlying economic momentum appeared to have increased, and the labor market is "close to maximum employment."
  • AI boom: staff attributed part of the rise in inflation to higher prices for tech-related consumer goods linked to the AI buildout.
  • Energy costs: officials noted that higher energy costs hit low- and moderate-income families hardest.

A Divided Committee on the Reasoning

Reuters reports that officials agreed on the hike but disagreed about its meaning. Some saw it as largely precautionary, while others viewed it as a shift to significantly tighter policy. A couple framed it as matching a higher estimated neutral rate. Several participants said the current policy rate is not restrictive or only mildly restrictive.

What Markets Expect

  • October 27-28 meeting: traders now see a hold, with futures-implied odds of a hike around 20%. Dovish remarks from New York Fed President John Williams and Vice Chair Philip Jefferson helped lower expectations.
  • December 8-9 meeting: investors expect the Fed to hike again, according to Reuters.
  • Dot plot: the committee projected one more hike this year and none in 2027.

What to Watch Next

  • The September CPI report on October 14 and PPI on October 15.
  • Further speeches from Fed officials, including Chair Kevin Warsh.
  • The October FOMC decision and the December meeting.