Fed minutes: one more rate hike possible before year-end

The Federal Reserve (Fed) has released the minutes of the Federal Open Market Committee (FOMC) meeting held on September 15-16. At the meeting, the policy rate was raised by 25 basis points, as expected, to a range of 3.75-4 percent.

According to the minutes, all officials supported the rate increase. They emphasized that inflation remains elevated, the labor market is showing signs of strengthening, and economic activity is expanding at a solid pace. Nearly all participants assessed that risks to inflation are tilted to the upside, while labor market risks are broadly balanced. The decision was said to help bring inflation back to the 2% target.

Most officials judged that one more increase in the target range for the federal funds rate before the end of the year would be appropriate. A few officials did not regard the current rate as restrictive, or as only modestly restrictive.

Some officials warned that investment in artificial intelligence infrastructure could cause aggregate demand to exceed aggregate supply over the medium term, putting upward pressure on inflation. Others said the scale and pace of AI infrastructure development continue to surprise on the upside.

Regarding the labor market, officials expect conditions to remain stable and unemployment to stay close to current levels. Many officials noted that financial conditions are supporting economic growth, despite the recent rise in long-term Treasury yields.

On balance sheet policy, a few officials noted that Treasury markets are functioning smoothly, but stressed the importance of being prepared for market stress.