PolicyMarket noteThursday 8 October 2026, 08:28
Fed minutes: most officials expect another rate rise by the end of the year
The Fed minutes show most officials expect another rate rise by the end of 2026. Since then, inflation and hiring came in softer, but long yields kept rising.
By The Notebook Desk
Most Federal Reserve officials think they will need to raise interest rates again before the end of the year, the Fed minutes of the September meeting show. “Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end,” say the minutes, published on Wednesday.
At that meeting, on 15 and 16 September, the Fed raised its target range by a quarter point to 3.75% to 4%, as we reported on 29 September. The minutes show that all participants supported the rise. The harder question is the next step, and the data since the meeting have made it harder.
What the Fed minutes say about the next rate rise
The officials’ own forecasts already pointed to one more increase. In the Summary of Economic Projections, the median official put the federal funds rate at 4.1% at the end of 2026, a quarter point above the new range’s midpoint. The minutes add the reasons.
Many participants said a higher path for rates would be prudent on risk-management grounds: insurance against inflation that stays high. A number of others said it was needed under their main forecast. Several said the current rate was not restrictive, or only mildly so. A couple had raised their estimate of the neutral rate, the level that neither slows nor speeds the economy.
The committee did not commit itself. Participants said they would approach each meeting “with an open mind”. Two meetings remain this year, on 27 and 28 October and on 8 and 9 December, according to the Fed’s calendar.
Why officials worry about inflation
Participants said they had not seen sufficient progress on inflation in recent months. They named two causes: geopolitical developments, which pushed up the prices of crude oil and refined fuels, and the boom in AI investment. Some said the AI build-out could make demand outrun supply. Some worried that after more than five years of inflation above 2%, high inflation could begin to affect expectations and the way wages and prices are set.
Fed staff did not expect inflation to return to the 2% goal until 2029. Participants judged that the risks to inflation were skewed to the upside, while the risks to the labour market were broadly balanced.
What has changed since the meeting
The data since then have been softer than the Fed expected. Fed staff estimated core inflation, which leaves out food and energy, at 3.2% in August under the Bureau of Economic Analysis’s new method. The BEA’s figure came in at 3.0%, and headline inflation at 3.4%. In September, employers added only 29,000 jobs and the unemployment rate rose to 4.2%, from 4.1% in August, the Bureau of Labor Statistics reported.
Households, though, expect more inflation, not less. In the New York Fed’s September survey, median expected inflation one year ahead rose to 3.9%, the highest since May 2023. The minutes named short-term inflation expectations as elevated.
Markets have moved the next rise back but not given it up. Futures put the chance of a rise on 28 October at about 18%, and the chance that rates are higher by the December meeting at about 85%, on 7 October, according to Central Bank Watch.
Long-term yields rose, short ones did not
Since the decision, the 2-year Treasury yield, which follows expectations for the Fed, has barely moved: it rose 3bp to 4.77%, Treasury data show. The 10-year yield rose 27bp to 5.28%, and the 30-year yield 32bp to 5.67%.
A few participants discussed why long yields had risen: a stronger economy, more expected borrowing to pay for AI, and geopolitics. Many said that financial conditions still supported growth despite the rise, with stock prices up substantially this year and corporate bond spreads narrow. On Wednesday the Treasury sold $39bn of 10-year notes at a yield of 5.300%, against 4.834% when it sold the same notes on 9 September, TreasuryDirect shows.
What to watch
The next decision is on 28 October. The September figures for consumer prices, and for the PCE price index, the Fed’s preferred measure, will show whether August’s softer inflation reading lasts. If core inflation keeps falling and hiring stays weak, the “most participants” of September could become a smaller group by December. If oil and AI spending keep prices up, the December rise that markets expect becomes more likely.
Disclosure
This is analysis and opinion, not investment advice.