Fed officials see another hike coming, but no sign as to when, minutes show

Federal Reserve officials expect they will raise interest rates again before the end of the year to head off inflation that has run above target for more than five years, according to meeting minutes released Wednesday.

But the meeting summary provided no indication of when specifically that policymakers expected to raise benchmark rates – only that persistently higher prices and a stable labor market likely would lead to a second hike this year.

"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.

That position came with a note of caution.

"Participants emphasized, however, that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks," the minutes said.

Coming off the meeting, which featured tough inflation talk from Chairman Kevin Warsh during his subsequent news conference, markets started betting the Fed would follow the Sept. 16 hike with another move at the late October meeting.

However, recent inflation data and comments from leading Fed officials indicate that at least for October, another increase is unlikely.

The Fed's preferred gauge – the personal consumption expenditures price index – showed core inflation at 3% for August and headline at 3.4%. While both readings were still well north of the central bank's 2% target, they were considerably lower than expectations, benefiting in part from changes in the way some of the inputs are calculated.

Discussion at the September meeting showed officials see risks that inflation will prove sticky, while the labor market is "close to maximum employment" and economic growth overall has picked up.

The vote to raise the benchmark funds rate by a quarter percentage point was unanimous, despite prior indications that several key officials were reluctant to hike.

"Many participants emphasized that a higher path for the target range would be prudent on risk-management grounds, providing insurance against inflation remaining persistently above target due to stronger-than-expected demand or further adverse supply shocks," the summary said.

As a group, the Federal Open Market Committee indicated one more hike this year, then none in 2027. Of the 18 FOMC officials who submitted forecasts, 16 said they expected another increase.

Warsh has not submitted a forecast since taking the position in May. During his news conference, he described the hike as removing "a dose of accommodation" from monetary policy, a remark that Wall Street analysts pored over and took to mean that additional increases could be on the way.

But several other officials since then have stressed that the Fed doesn't need to rush, while inflation data has been at least a bit more encouraging even if short-term expectations have risen considerably.

Market-based indicators for inflation are still elevated, and a fresh survey released Wednesday by the New York Fed showed consumer fears over rising prices in the next year are at their highest since May 2023.

Treasury yields have been soaring as well, hitting levels not seen since 2002.

Officials at the meeting discussed the rise in yields, attributing them to expectations for higher rates from the Fed as well as the buildout in artificial intelligence and solid economic growth. Staff economists also noted that some of the surge may have come from "uncertainty related to the U.S. Treasury's announcement and implementation of the buyback program."

Treasury Secretary Scott Bessent in August announced his department would ramp up its buybacks of already-issued long-dated debt. However, the move has had little impact on yields, which are around their highest levels since 2002.