September FOMC Minutes: Broad Support for 25-Basis-Point Hike, Most See Another by Year-End as Likely Appropriate
Updated
Summary
The September FOMC minutes reported broad support for the 25-basis-point rate hike, alongside officials’ concern that inflation remained elevated and had made insufficient progress toward the 2% target.
Most participants saw inflation risks tilted to the upside, while labour-market risks had become more balanced. Many considered the September hike prudent as a risk-management measure, particularly because persistent inflation could become embedded in expectations.
Looking ahead, most participants judged another rate hike by year-end likely to be appropriate, while stressing that decisions would remain data-dependent.
Why it matters
Officials identified geopolitical developments and surging AI-related investment as ongoing inflation risks. They noted that AI-related demand could outpace supply and keep goods prices elevated as tariff effects fade. At the same time, medium- and longer-term inflation expectations remained consistent with the Fed’s target, and some recent core PCE contributions from software and portfolio management fees were expected to diminish after methodological changes.
The Fed staff outlook projected inflation somewhat higher than previously projected over 2026–2028, before returning to 2% in 2029. In that outlook, growth was expected to strengthen and unemployment to remain below its longer-run level.
Despite higher Treasury yields, many participants judged financial conditions supportive of growth, citing strong equity markets and narrow corporate credit spreads; the impact of tighter conditions on economic activity was expected to be relatively modest.
What remains uncertain
The source’s base case, following the latest core PCE data and recent Fed officials’ comments, remained for a second rate hike in December. It also said there was a strong possibility the FOMC would ultimately decide further tightening was unnecessary.