Fed Minutes Point To Another 2026 Rate Hike, But October Move Looks Unlikely
By CU Today Staff —
WASHINGTON—Federal Reserve policymakers broadly agreed another interest rate increase will probably be needed before year-end, but minutes released Wednesday offered little indication officials are in a hurry to move again at their Oct. 27-28 meeting.
The minutes of the Sept. 15-16 meeting showed most participants believed another increase would likely be appropriate this year, while stressing future decisions would depend on incoming economic data. The Fed unanimously raised the federal funds target range by a quarter percentage point to 3.75%-4% in September, its first increase in three years.
The minutes also exposed an important divide beneath that unanimous vote. Many officials viewed higher rates as insurance against inflation remaining stubbornly above the Fed's 2% target because of stronger demand or additional supply shocks, while others viewed tighter policy as necessary under their baseline economic forecasts. Several participants said the current policy rate was either not restrictive or only mildly restrictive. The Fed staff estimated August PCE inflation at 3.8% and core inflation at 3.4% under the methodology available at the meeting.
But the economic picture has shifted since the September meeting. Subsequent inflation and employment reports came in softer than anticipated, strengthening the argument for waiting before another hike. Reuters reported investors now expect the Fed to hold rates at 3.75%-4% later this month and raise them in December, while the Wall Street Journal said the minutes showed no clear urgency among policymakers for an October increase.
The minutes also showed policymakers discussing risks beyond inflation. A few participants said the Fed should prepare its strategy, communications and tools for possible Treasury-market stress while limiting its footprint in the market. That discussion comes as long-term Treasury yields have surged, pushing mortgage and other borrowing costs higher and effectively tightening financial conditions even without another Fed hike. The emerging message from the minutes and Wednesday's analysis is that policymakers remain biased toward additional tightening, but the debate has shifted from whether another hike is likely to when it should occur.
Originally reported by CU Today.