Federal Reserve meeting minutes: All 19 policymakers support a rate hike in September, but reasons vary; most expect further hikes this year, suggesting no urgency in October.

The minutes from the Federal Reserve's September meeting indicate that the policy-setting committee displayed a unanimously hawkish stance towards rate hikes, even though their reasons for supporting an increase differed.

According to the minutes from the Federal Open Market Committee (FOMC) meeting held September 15–16, released on Wednesday, all 19 senior Federal Reserve officials supported raising the federal funds rate target range by 25 basis points to 3.75%–4.00%. This marks the first Fed rate hike since July 2023.

The minutes note, “Most participants judged that it would likely be appropriate to raise the target range for the federal funds rate further by the end of this year.” However, participants also emphasized that they would take an open approach to each meeting and that future policy decisions would depend on the latest information available at the time.

Nick Timiraos, a journalist known as the “New Fed Whisperer”, highlighted in his coverage of the Fed minutes: “Regarding the monetary policy outlook after this meeting, most participants judged that another increase in the target range for the federal funds rate would likely be appropriate by year-end.”

Following the meeting, as employment data came in weaker than expected and several officials signaled there was “no need to rush” into further rate hikes, markets now expect the Fed to stand pat in October and possibly hike again in December.

According to the CME FedWatch tool, investors currently price less than a 20% probability that the Fed will raise rates by 25 basis points at the October 27–28 meeting, significantly down from about 70% a few days after the September decision. The Consumer Price Index (CPI) data set to be released on October 14 could be an important factor influencing these expectations.

The two-year US Treasury yield has dropped by more than 12 basis points over the past week and is now hovering near 4.78%. As one of the maturities most sensitive to Fed policy expectations, the decline in the two-year yield reflects the market’s belief that the need for successive short-term tightening is diminishing.

All 19 Officials Unanimously Supported September Hike, but Reasons for Hiking Differ

During the September meeting, Federal Reserve officials reached consensus on the need for a rate increase, but the minutes show there were notable discrepancies over whether the hike was for “insurance” purposes or to counter broader inflationary pressures.

“Many participants” viewed the higher rate target as a risk-management measure to provide insurance against inflation remaining persistently above the 2% target, especially if demand stayed stronger than forecast or the supply side faced new shocks.

Meanwhile, another group of officials felt that higher policy rates were necessary in and of themselves to prevent recent shocks, such as higher energy prices, from spreading to a broader range of goods and services. A few officials also believed that the rate hike was consistent with their assessment that the neutral rate had risen.

The minutes also show that some participants judged the policy rate prior to the September hike had not been restrictive enough. “Several participants” said the prevailing policy rate was “not restrictive or only modestly restrictive.”

This means that while all officials supported the September increase, there was no universally shared determination that the Fed had entered a new phase requiring continued and substantial policy tightening.

Most Officials Expect One More Hike This Year, But No Clear Sense of Urgency for October

Regarding the next steps in policy, the information in the minutes tilted hawkish but did not show that an October rate hike was a done deal.

The minutes state, “Most participants judged that it would likely be appropriate to raise the target range for the federal funds rate again by the end of this year”. This means that as of the September meeting, most officials still expected at least one more rate increase this year.

However, officials also stressed their intention to remain “open-minded” about each meeting, with future policy choices depending on ongoing developments and incoming data.

This language is consistent with recent public comments from Fed officials.

New York Fed President John Williams and Vice Chair Philip Jefferson both recently said the Fed has time to further assess economic conditions and does not need to rush into another rate hike. Their remarks quickly led markets to reduce expectations for an October increase.

Additionally, the weaker-than-expected US September jobs report further reduced the market’s anticipated odds of a rate hike this month. Investors are now more inclined to believe that the Fed will pause in October, wait for more inflation and employment data, then consider a second increase for the year in December.

Inflation Remains Above Target; Energy Prices and AI Investment Add to Upside Risks

Although the Fed believes inflation is gradually cooling, officials still lack sufficient confidence in the pace of disinflation.

The minutes reveal that almost all participants see inflation risks tilted to the upside, with some stating that the risk has intensified in recent months. Officials observed that recent increases in energy prices, geopolitical risks, and tariffs all heighten the risk of inflation lingering longer than expected.

The current AI investment boom was also cited as an important new inflation risk at this meeting.

Some officials noted that AI is driving investment and raising productivity prospects, but may also lift inflation via stronger demand, higher input costs, and increased financing needs. At the same time, strong demand for skilled labor in AI-related industries could push up wages in related roles.

The minutes state that AI build-out is driving corporate investment, and the scale and speed “continue to exceed expectations.”

In addition, some officials noted that core goods prices remain elevated. As the effects of AI infrastructure construction spread, the resulting demand and cost pressures may offset some of the relief from easing tariffs.

US Economy Remains Resilient; Financial Conditions Still Support Growth

The resilience of economic growth was also a major background factor in the Fed’s decision to hike rates in September.

The minutes show that several officials believe the US economy’s underlying momentum has strengthened. Consumer spending remains robust, business investment is supported by ongoing AI infrastructure buildout, and the overall economy continues to expand at a solid pace.

Meanwhile, the labor market is considered to be near full employment.

Financial conditions have likewise not imposed sufficiently strong constraints on the economy. Although long-term Treasury yields have risen notably recently, many officials think overall financial conditions still support growth, citing the substantial equity rally this year and tight corporate credit spreads.

The minutes report that two- to ten-year Treasury yields rose about 35 basis points during the relevant period. Officials believe real rates are among the key drivers of the rise in long-term yields.

Market participants have also pointed to geopolitical risks, uncertainty around US Treasury buyback plans, as well as large private debt issuance to finance AI infrastructure, as factors boosting term premiums and Treasury yields.

July Joint Intervention Supported Yen, Driven by Treasury, Did Not Use Fed Funds

The late-July joint US-Japan currency intervention to support the yen was an action taken by the US Treasury and did not involve Federal Reserve funds.

The minutes note that the New York Fed acted “entirely in its capacity as fiscal agent for the US Treasury” to conduct the intervention, using Treasury funds. The Fed’s System Open Market Account (SOMA), which holds US government bonds and other securities on the Fed’s balance sheet, did not participate in the intervention.

The minutes did not disclose the exact timing or size of the operation. Treasury Secretary Bessent said last month that only a “trivial” amount of US funds was used and that the intervention was in America’s interest.

Yen weakness has become an increasing concern for Japanese policymakers, as it drives up import costs and households’ cost of living. At the same time, Trump has criticized yen weakness, saying it gives Japanese manufacturers unfair trade advantages.

The late-July intervention marked the first joint Tokyo-Washington action to support the yen in nearly 30 years. According to the Japanese Ministry of Finance, a record 15.4 trillion yen (about $97.5 billion) was spent on intervention in the month ending August 26.

Both Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Bessent have signaled that the two countries would be willing to intervene again if necessary.