Fed Minutes Show Most Officials Expect Another Rate Hike by Year-End

Federal Reserve officials were unanimous in raising interest rates last month, and most expect to do so again before the end of the year, according to minutes from the central bank's September meeting released Wednesday.

The Federal Open Market Committee voted 12-0 on Sept. 16 to lift its benchmark rate by a quarter-percentage point to a range of 3.75% to 4% — the first increase since 2023, according to multiple accounts of the minutes. Every participant in the meeting backed the move.

"Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes stated, according to a Bloomberg report via the Detroit News. Officials stressed that future decisions would depend on incoming data.

The driver behind the rate path remains inflation. Fed staff estimated that prices rose 3.8% in August from a year earlier as measured by the central bank's preferred gauge, well above its 2% goal, according to a Scripps News report published by kjrh.com. That same source said staff economists projected inflation would not return to 2% until 2029. Other reports cited the Personal Consumption Expenditures index at 3.4% in August — still more than a percentage point above target.

Officials pointed to energy prices, pushed higher by conflict in the Middle East, as a central concern. Many warned that the longer those prices stay elevated, the greater the chance they feed into broader price increases. The minutes also flagged the artificial intelligence boom as a newer source of pressure, with staff attributing part of the rise in inflation to higher prices for technology-related consumer goods tied to the AI buildout.

Despite the unanimous vote, the minutes revealed divisions over the rationale for raising rates, according to a report by the Korea Times. Some participants saw the hike as needed to keep the impact of energy and other price shocks at bay, while a more hawkish core viewed it as necessary to guard against emerging demand-driven inflation. "Several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive," the minutes said, according to the Bloomberg report.

**Market reaction and recent data**

Investor expectations shifted sharply after the September meeting. In the days following the decision, futures markets priced in roughly a 70% chance of another quarter-point hike at the Fed’s Oct. 27-28 meeting, according to the Bloomberg report. But a series of developments have since pared those bets.

The September jobs report, released Oct. 2, showed employers added just 29,000 jobs while unemployment rose to 4.2%, according to the Scripps News report. That weaker reading has investors betting the Fed will hold rates steady at its next meeting, according to the same source. The Bloomberg report noted that yields on two-year Treasuries, seen as most sensitive to Fed policy, dropped more than 10 basis points in the past week to near 4.8%.

Comments from Fed officials also cooled expectations. Fed Vice Chair Philip Jefferson said last week that policymakers "will need to come to our own judgement, which may take more time," as reported by the New York Post. New York Fed President John Williams similarly indicated the central bank has time to assess the economy before considering another increase, according to the Bloomberg report.

As of Wednesday, investors were pricing in roughly a 20% chance of a quarter-point hike at the October meeting, down from around 70% in the days following the September decision, based on federal funds futures, the Bloomberg report said.

**Warsh and Trump**

Chairman Kevin Warsh emphasized after the decision that inflation remains too high. "The plain fact is that inflation is too high and has been for too long," Warsh said at a news conference, according to the New York Post. He added that the FOMC decided that the standard for confidence in underlying inflation moving toward target "has not been satisfied."

The rate increase defied President Donald Trump's repeated calls for the Fed to cut rates. Trump criticized the rate-setting committee, calling them "very political," but expressed support for Warsh, as reported by the Associated Press via ABC News and the New York Post.

**Financial conditions and outlook**

The minutes also revealed a discussion about financial conditions. Many officials commented that despite the recent rise in longer-term Treasury yields, financial conditions "appeared to be supportive of economic growth, with equity prices having risen substantially this year and spreads on corporate bonds having remained narrow," according to the Bloomberg report. The New York Post similarly reported that even with rising longer-term rates, many officials said conditions appeared supportive — a sign more rate hikes might be needed to cool the economy.

Several policymakers said they saw the Fed's rate as too low to restrain the economy, suggesting support for multiple rate hikes to rein in inflation, according to the New York Post.

The year-end language in the minutes leaves room for officials to wait until December, when they will have two more months of inflation and jobs data to weigh. The next FOMC meeting is scheduled for Oct. 27-28.