FOMC minutes: a unanimous hike, and most expect another by year end
Serguey Asael Shinder2 min readThe Federal Reserve on 7 October released the minutes of the 15–16 September meeting of the Federal Open Market Committee, at which it raised the target range for the federal funds rate by a quarter point to 3.75–4%.
Unanimous, and not only for insurance. All participants supported the increase, and the vote was 12–0. Many described a higher path as prudent risk management against inflation staying above target. But a number of participants said a higher path was necessary on their central forecasts, not just as insurance — and several said they viewed the current rate as not restrictive, or only mildly restrictive. A couple had raised their estimate of the neutral rate.
More to come. Most participants judged that another increase would likely be appropriate by year end, while stressing that each meeting stays open.
Why. Participants said they had not seen sufficient progress on inflation. They pointed to geopolitical developments that pushed up crude oil and fuel prices, and to surging AI-related investment; several said the scale and pace of the AI build-out kept surprising to the upside. Almost all saw inflation risks tilted to the upside, while risks to the labour market had diminished and were broadly balanced. A couple warned that higher rates would help stop sector-specific price increases from energy and AI demand from broadening.
Credit is not tight. Many participants said financial conditions still appeared supportive of growth despite higher long-term Treasury yields, citing strong equity prices, narrow corporate spreads, robust loan and bond issuance and easier bank lending standards. Housing was the exception, with mortgage rates elevated.
Measurement caveats. A few participants noted that software and portfolio-management fees had made unusually large contributions to recent PCE readings, and that upcoming BEA methodology changes would likely reduce them somewhat. A few warned that the three-month core PCE measure tends to understate inflation in the second half of the year.
Balance sheet. A few participants called for strengthening the Fed's strategy and tools for Treasury-market dysfunction, while limiting its footprint in that market.