Fed Minutes Confirm Another Rate Hike Was Already In Sight

All participants at the Fed’s September 15–16 meeting supported the 25-basis-point rate increase, while most judged that another hike would probably be appropriate by the end of the year. The Minutes show policymakers increasingly focused on upside inflation risks, a resilient economy and the possibility that strong AI investment could add to demand pressures.

Participants generally agreed that inflation remained elevated, while the labour market was close to full employment. Almost all saw inflation risks tilted to the upside, with some saying those risks had become more pronounced recently. Job-market risks were viewed as broadly balanced, giving the Fed greater scope to concentrate on restoring price stability.

Several officials warned that the AI buildout could eventually push aggregate demand ahead of supply, creating additional upward pressure on prices. The staff’s economic outlook was also stronger than in July, reinforcing the view that the economy could withstand further policy tightening. Against that backdrop, most participants considered another rate increase by year-end likely to be appropriate.

Financial conditions were also judged to remain supportive of growth despite the recent rise in long-term Treasury yields. A few participants said the Treasury market was functioning smoothly, while they stressed the importance of preparing for episodes of market stress.

Overall, the minutes reinforce a hawkish policy bias: the September hike was supported unanimously, and further tightening remained the most likely path if inflation fails to moderate.

Market reaction

The Greenback remains well bid on Wednesday, motivating the US Dollar Index (DXY) to keep its trade above the 102.00 yardstick as investors continue to assess the latest release of the FOMC Minutes.