Most Fed Officials Expected Another Rate Increase by Year-End, the September Minutes Show

The Federal Reserve published the minutes of its September 15-16 meeting on October 7. The central line in them is a forward one: most participants judged that another increase in the target range by the end of this year would likely be appropriate. The meeting itself had already delivered one increase, the first since 2023, and the minutes set out why the Committee did not treat it as the last.

What the Committee did

The Committee raised the target range for the federal funds rate by a quarter percentage point, to 3-3/4 to 4 percent. The Board set the interest rate on reserve balances at 3.90 percent and the primary credit rate at 4.0 percent, both effective September 17. The standing repo rate is 4.0 percent and the overnight reverse repo offering rate is 3.75 percent.

The statement issued on the day of the decision said that inflation remains elevated, and that the action would support a timelier return to the Committee's 2 percent goal. On employment it said that job gains have kept pace with the workforce and the unemployment rate has changed little.

Job gains have kept pace with the workforce, and the unemployment rate has changed little.

The case participants made for going further

• Most participants judged another increase in the target range by year-end would likely be appropriate.
• Many said a higher rate path was prudent on risk-management grounds.
• A number said a higher path was necessary based on their own central outlooks, not only as insurance.
• Several viewed the current policy rate as not restrictive, or only mildly restrictive.
• Participants stressed that they approach each meeting with an open mind and would respond to incoming data.

Inflation, and a measurement change sitting underneath it

Total PCE inflation was estimated at 3.8 percent over the twelve months to August, and core PCE at 3.4 percent. The minutes also record a second pair of figures. Under a Bureau of Economic Analysis methodology change planned for late September, staff estimated the same two readings at 3.6 percent and 3.2 percent. The gap is a reminder that the series the Committee targets is itself subject to revision.

Participants said inflation remained elevated and that progress had been insufficient. Several pointed to elevated core services and core goods prices. Some judged underlying inflation to be above 2 percent. On expectations, participants generally saw medium- and longer-term measures as consistent with the 2 percent objective, though several saw short-term expectations as elevated.

The labour market

The unemployment rate was 4.1 percent in both July and August. Participants generally viewed the labour market as close to maximum employment, and a majority said it had strengthened a bit recently. Several noted a less comfortable detail underneath that: hiring and layoff rates are both unusually low, and the long-term unemployment rate is persistently elevated. A labour market in which few people are being let go but few are being hired can look stable in the headline rate while leaving anyone already out of work stuck there.

The balance sheet

The Desk paused reserve management purchases, and the minutes say the pace of future purchases is not preset. The standing directive continues to roll over Treasury principal payments at auction and to reinvest all principal from agency securities into Treasury bills. A few participants said Treasury markets were functioning smoothly but urged planning for periods of market stress, and suggested limiting the Federal Reserve's footprint in the Treasury market.

What the staff expects

• Total inflation falls over the remainder of 2026 and reaches 2 percent in 2029.
• Real GDP growth picks up in the second half of 2026 and outpaces potential through 2028.
• The unemployment rate stays below the staff's longer-run estimate through 2029.
• Uncertainty is substantial. Employment and GDP risks are roughly balanced; inflation risks are skewed to the upside.

The September meeting was the first rate increase in roughly three years, and the minutes read as a Committee that regards it as a step rather than a correction. Inflation risks skewed upward, a labour market judged near maximum employment, and a policy rate several participants do not consider restrictive are the three pieces that, in the minutes' own framing, point the same direction.