Fed Minutes Point to Another Rate Hike by Year-End, With Rates at 3.75% to 4%
Most Federal Reserve officials expect to raise interest rates again before 2026 ends, according to Axios, which reported on minutes of the central bank's Sept. 15-16 meeting released Wednesday.
The federal funds rate target range is now 3.75% to 4% after a 25-basis-point increase, which is a quarter of a percentage point.
The September move was the Fed's first hike in three years, and the vote was unanimous, the Motley Fool reported. Officials also said they would approach each upcoming meeting with an open mind and base decisions on new data.
What the Minutes Say About the Next Move
Most participants judged that another increase would likely be appropriate by year-end, the minutes show. Projections released with the September decision had 16 of 18 officials penciling in at least one more hike in 2026, Axios reported.
Fed Chair Kevin Warsh, who has promised to tame inflation and put inflation first, did not submit a projection. He offered little guidance to reporters last month, according to Axios. Since then, two key Fed officials have signaled there is no rush to hike again.
Why Officials Worry About Inflation
Many officials said the longer energy prices stay high, the greater the risk that cost increases in some sectors spread into broader price pressures.
A couple of participants said a higher policy rate would help keep energy disruptions and AI-related demand from producing more persistent inflation, Axios reported.
Several officials described current rates as not restrictive or only mildly restrictive. That suggests they see Fed policy doing little so far to slow the economy.
Many also pointed to higher stock prices and ample credit as continuing to support borrowing and investment.
A few officials discussed the sharp rise in longer-term Treasury yields and cited stronger economic data, heavier AI-related borrowing and geopolitical developments as possible causes.
Market Odds Have Shifted
The minutes are three weeks old, and conditions have moved since then, the Motley Fool noted. Shortly after the September hike, investors put the odds of another increase at the Oct. 28 meeting at 51%.
Two reports changed that. The personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, came in cooler than expected for August. The September jobs report showed almost no job growth.
As of Oct. 7, the CME FedWatch tool, which draws on federal funds futures prices, put the chance of an October hike at 18%. The same tool showed an 80% chance that rates will be at 4% to 4.25% or higher after the December meeting, the Motley Fool reported.
The minutes also record that officials viewed the economy as growing at a generally solid pace with low unemployment. They said this hike and later ones would support a faster return of inflation to the Fed's 2% goal.
The Wall Street Journal reported that many officials considered the September increase justified by the risk that inflation runs above expectations. Some thought the current price outlook alone warranted it.