Fed Minutes Show Hawkish Unity Behind September Rate Hike

A separate group of officials said higher rates were necessary based on their outlook for the economy, signaling greater concern for elevated inflation, according to minutes of the Federal Open Market Committee Sept. 15-16 meeting released Wednesday in Washington.

"Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes said.

FOMC voters unanimously backed the decision last month to raise the target range for their benchmark rate by a quarter-percentage point to 3.75% to 4% - the first increase since July 2023. The move came amid signs the broader economy was accelerating.

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"Several participants commented that the underlying momentum in the economy appeared to have increased," the minutes also said.

The record 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."

Chairman Kevin Warsh told reporters following the Sept. 16 decision the move was aimed at removing a "dose of accommodation" as inflation remained stubbornly high. His comments fueled market bets for another increase in October.

The decision also prompted criticism from President Donald Trump, who blamed the rate increase on Warsh's colleagues, whom he claimed were being "very political."

Since the meeting, however, a series of comments from key Fed officials have indicated the central bank may be in no rush to raise rates again.

Fed Vice Chair Philip Jefferson and New York Fed President John Williams said in separate speeches last week they believed the central bank has time to assess the economy before considering another rate increase. Investors promptly reeled in their expectations for a rate hike this month.

Repricing Expectations

Investors on Wednesday were pricing in a roughly 20% chance of another quarter-point hike at the Fed's Oct. 27-28 meeting, down from around 70% in the days following the September decision, based on federal funds futures. Yields on two-year Treasuries, seen as the most sensitive to Fed policy, dropped more than 10 basis points in the past week to near 4.8%.

Last week's remarks by Williams and Jefferson don't mean the Fed won't adjust policy any further. Officials continue to warn that inflation is too high. Consumer price data due Oct. 14 might yet revive calls for a near-term hike.

Some officials, including three who voted against the FOMC decision to hold steady in July, could dissent again in favor of another increase if the majority votes to leave rates unchanged at the October meeting.

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"Several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive," the minutes said, referring to the benchmark rate before the September hike.