Fed Minutes Show Broad Support for Another Rate Hike by Year-End

The minutes described the September increase as prudent from a risk-management standpoint. Most participants worried that inflation risks leaned to the upside, while risks to the labor market had become more balanced. The concern was that persistent inflation could become embedded in expectations, making it harder to bring price growth back to target without a sharper economic slowdown later.

Several forces were flagged as potential sources of continued price pressure. Officials pointed to geopolitical developments and a surge in artificial intelligence-related investment, which could push demand for AI hardware and services ahead of available supply and keep goods prices elevated even after tariff effects fade. On the other side, medium- and longer-term inflation expectations remained consistent with the Fed's target, and some recent contributions to core PCE inflation from software and portfolio management fees are expected to diminish after methodological changes. The staff's own outlook had inflation running somewhat higher than previously projected over 2026 through 2028 before returning to 2% in 2029, with growth expected to strengthen and unemployment staying below its longer-run level.

Even with Treasury yields higher, many participants judged financial conditions still supportive of growth, citing strong equity markets and narrow corporate credit spreads. That assessment matters because it implies the drag from tighter conditions on economic activity is expected to be relatively modest, which in turn reduces the case for cutting rates soon. Following the latest core PCE data and recent comments from Fed officials, the base case remains for a second rate hike in December, though there is a strong possibility the FOMC ultimately decides that further tightening is unnecessary.