Federal Reserve officials expect to raise interest rates again before the end of the year, according to minutes from the September meeting released Wednesday, though they gave no indication of when the next increase might come. Most participants assessed that another hike would likely be appropriate, while emphasizing that decisions at future meetings would depend on incoming data. The Federal Open Market Committee next decides on rates on October 28 and again on December 9.
Federal Reserve officials expect to raise interest rates again before the end of the year to counter inflation that has run above target for more than five years, according to meeting minutes released Wednesday, but the summary provided no indication of when policymakers expected to move.
"With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the document stated. The minutes added that participants approached each meeting with an open mind and that future decisions would be guided by incoming information and the balance of risks.
The September meeting raised the benchmark rate by a quarter percentage point, a unanimous decision. Of the 18 officials who submitted forecasts, 16 expected another increase this year, with none projected for 2027.
The minutes showed officials see risks that inflation will prove sticky, while the labor market is "close to maximum employment" and economic growth has picked up. During his post-meeting news conference, Chairman Kevin Warsh described the rate rise as removing "a dose of accommodation" from monetary policy, a remark analysts took to mean further increases could be on the way. Several other officials have since stressed that the Fed does not need to rush.
Inflation data has been more encouraging even though price pressures remain above the Fed's 2% target. The personal consumption expenditures price index, the Fed's preferred gauge, showed core inflation at 3% for August and headline at 3.4%, lower than expected. A New York Fed survey released Wednesday showed consumer fears over rising prices in the next year at their highest since May 2023.
Treasury yields have soared to levels not seen since 2002. Officials attributed the rise to expectations for higher rates, the build-out in artificial intelligence and solid economic growth, while staff economists noted some of the surge may reflect uncertainty related to the U.S. Treasury.
Analysis
Why This Matters
- The Fed's rate path sets the cost of borrowing across the global economy, and a second hike in 2026 would mean tighter financial conditions for longer for households, businesses and emerging markets.
- Consumer inflation expectations are rising even as the Fed tries to cool prices, a combination that could force a more aggressive policy response if it persists.
- The gap between market pricing and the Fed's own signals is a source of volatility for stocks, bonds and currencies in the months ahead.
Background
The Federal Reserve has been trying to bring inflation back to its 2% target after prices ran above it for more than five years. It raised the benchmark rate by a quarter point at its September meeting, a unanimous decision, and the minutes describe a central bank balancing sticky inflation against a labor market that is close to maximum employment. Chairman Kevin Warsh, who took the position in May, has not submitted an economic forecast since arriving.
Key Perspectives
Fed officials (hawkish): Most participants saw another hike as prudent on risk-management grounds, providing "insurance against inflation remaining persistently above target due to stronger-than-expected demand or further adverse supply shocks."
Fed officials (cautious): Several have emphasized that the Fed does not need to rush, noting that inflation data has been at least somewhat more encouraging, and that decisions will depend on incoming information.
Markets and analysts: Wall Street initially read Warsh's "dose of accommodation" remark as a signal that more increases were coming and priced in an October move, though recent data and comments from officials have tempered those expectations.
Consumers: A New York Fed survey shows households expect prices to keep rising, with short-term inflation expectations at their highest since May 2023.
What to Watch
- The October 28 and December 9 FOMC meetings, the next opportunities for a rate decision.
- Inflation data, particularly the PCE price index, for evidence that price pressures are cooling toward the 2% target.
- Treasury yields, which have hit levels not seen since 2002; a continued rise could do some of the Fed's tightening for it.
- Whether Warsh submits his first economic forecast, having not filed one since taking office in May.