Fed Officials Expect Another Hike, But Timing Unclear
Minutes made public on Wednesday show that central bank officials foresee another rate increase before the year is out, aimed at curbing price growth that has stayed above their objective for over five years. The summary gave no precise date for when benchmark borrowing costs might rise, saying only that continued elevated prices alongside a steady jobs picture would probably produce a second hike in 2026. Rate decisions are scheduled for Oct. 28 and Dec. 9.[S1][S2]
According to the minutes, a majority of those at the table concluded that lifting the federal funds rate target range once more before the year closes would probably be warranted. They paired that view with a caveat, stressing that they take each gathering as it comes and that any future choices will hinge on fresh data and what it means for the economic outlook and the balance of risks.[S1]
After the gathering, at which Chairman Kevin Warsh struck a hawkish tone on inflation in his later press briefing, traders began pricing in a further move at the late-October meeting on top of the Sept. 16 increase. Yet more recent price readings and remarks from senior Fed figures suggest that, for October at least, no additional hike is expected.[S1]
Inflation Data and Market Signals
The personal consumption expenditures price index, the central bank's favored measure, put core inflation at 3% in August and headline at 3.4%. Both figures remained far above the 2% goal, but came in noticeably below forecasts, helped partly by revisions to how certain inputs are computed. September's deliberations revealed that officials worry inflation could stay stubborn, even as the job market sits near maximum employment and overall growth has strengthened.[S1]
The decision to lift the benchmark funds rate by 25 basis points drew unanimous support, even though some prominent officials had earlier signaled hesitation about tightening. Numerous participants argued that a steeper trajectory for the target range made sense as a risk-management safeguard, insuring against inflation lingering above target because of unexpectedly strong demand or additional negative supply shocks.[S1]
Collectively, the Federal Open Market Committee projected one additional hike this year and none in 2027. Among the 18 officials submitting projections, 16 anticipated a further increase. Warsh has filed no forecast since assuming his post in May. At his press conference he framed the hike as taking some accommodation out of policy, wording that Wall Street analysts scrutinized and read as a hint more tightening might follow. Since then, though, other officials have said there is no need to hurry, and inflation figures have been somewhat more reassuring even as near-term expectations have climbed sharply.[S1]
Rising Yields and Consumer Concerns
Inflation readings drawn from markets remain high, and a new New York Fed survey published Wednesday found households' worries about price increases over the coming year at their strongest since May 2023. Treasury yields have climbed too, reaching levels last seen in 2002. Meeting participants talked about the yield increase, tracing it to expectations of higher Fed rates along with the artificial intelligence buildout and healthy growth. Staff economists added that part of the jump might stem from uncertainty over the Treasury's buyback program announcement and rollout. Treasury Secretary Scott Bessent said in August that his department would expand purchases of already-issued long-dated debt, yet yields barely moved and remain near their 2002 highs.[S1]
