#OneGate见证计划 #美联储会议纪要将公布 Fed minutes to be released tonight: How many rate hikes are hidden in Waller’s remark that it is “hard to characterize [policy] as restrictive”?

Is a 25-basis-point hike in September just the beginning? The minutes may reveal how the Fed determines “just how tight policy really is.” One sentence from Waller has left a key question hanging.

Why the word “restrictive” has become so important
First, let’s explain what “restrictive policy” means.
Simply put, it means interest rates are high enough to suppress demand and bring inflation down. If policy is truly restrictive, businesses will reduce borrowing, consumers will cut back on major spending, and the economy will slow noticeably. Conversely, if rates are merely “no longer accommodative” but have not actually tightened the reins, inflation can easily rebound. Waller said it was “hard to characterize [policy] as restrictive,” effectively acknowledging that current rates may still be in the stage of “pulling back from extreme accommodation,” far from the stage of “genuine tightening.” That leaves the market with a huge question mark—if policy is still not tight enough, how much more will rates have to rise?

Financial conditions indicators: Money is still relatively cheap
The market has tried to answer this question with data, but the answer is hardly reassuring. The Chicago Fed National Financial Conditions Index shows that US financial conditions have actually been easing gradually since reaching a peak in the fall of 2022. Although current conditions are not the loosest from a long-term historical perspective, they still lean toward the accommodative side of the historical range.
In other words, money in the US market is still not particularly difficult to borrow.
Now look at the corporate bond market. The option-adjusted spread on the ICE BofA US High Yield Index remains relatively narrow, with only a very small number of periods in history recording lower levels than today. Narrow high-yield spreads mean investors are willing to buy riskier corporate bonds at relatively low premiums, making corporate financing conditions quite accommodative. This points to the same conclusion: financial conditions have not truly “tightened.”
Michael Kramer, founder of Mott Capital Management, noted that if the Fed is indeed watching these indicators, current financial conditions would be difficult to define as restrictive in the strict sense. This also explains why the September rate hike may be just the beginning, rather than a “one-and-done” move.

Real rates are only 50 basis points—where is the “tightness”?
A more intuitive comparison comes from real interest rates.
Some background first. The August PCE data was released only after the September meeting, so the information available for the minutes did not include that report. However, when the BEA released the August data, it also conducted an annual revision, retrospectively adjusting data going back to 2021. After the revision, headline PCE rose 3.4% year over year in August, while core PCE rose 3.0%, both unchanged from July.
Notice one detail: Apart from a short period in 2024 and 2025, headline PCE has almost never fallen below 2.5% since early 2021, and has never reached the 2% target. This means inflation remains a considerable distance from “mission accomplished.” Now let’s do the math. The current effective federal funds rate is about 3.9%. Based on headline PCE, the real federal funds rate is only about 50 basis points; even based on core PCE, it is only around 90 basis points. Real rates of 50 to 90 basis points are hardly “tight” by historical standards.
Waller himself should be highly sensitive to this. In mid-2006, he served as a Federal Reserve governor. At the time, headline PCE inflation was about 3.3% to 3.5%, roughly comparable to today’s level. But the real federal funds rate was then about 1.5% to 2.0%; by October 2006, as inflation gradually declined, the real rate had risen further to 3.6%. In other words, with inflation at similar levels, the current real rate is more than 300 basis points below where it was during Waller’s mid-2006 tenure. Even compared with earlier levels in 2006, the gap remains enormous. This is why Waller said it was “hard to characterize [policy] as restrictive”—he was not being polite; he was stating a data-based fact.

What may be hidden in the minutes
Kramer believes the most important thing to watch in the minutes is not why the Fed raised rates by 25 basis points in September—that decision itself has already been announced. What truly requires close reading is how officials discuss financial conditions, real interest rates, and the pace of disinflation. Three questions are worth keeping in mind while reading the minutes:
First, how quickly does the Fed want inflation to return to 2%? If the minutes show disagreement among officials over “patiently allowing inflation to decline slowly,” that would indicate internal expectations for how long tightening should continue are not aligned. Second, do officials believe current policy is already sufficiently restrictive? If the minutes match the tone of Waller’s press conference and repeatedly emphasize that “financial conditions remain relatively accommodative,” it can basically be inferred that further action lies ahead.
Third, is the recent rise in market interest rates viewed as a substitute for tightening?
If officials believe that “rising Treasury yields amount to the Fed hiking rates for them,” the likelihood of holding rates steady in December will increase; if they believe the rise in market rates merely reflects inflation expectations, the central bank will still need to act itself.
Of course, the minutes also have limitations: They reflect only the discussion at the September meeting and may not include data released afterward, such as the revised August PCE results and the latest nonfarm payrolls data; they may also lack clear forward guidance. If the minutes use vague language and avoid quantifying how “restrictive” policy is, the market may continue to speculate.

What this means for the market
The minutes released early today are essentially a reference point for the market to reprice.
If the minutes acknowledge that “financial conditions remain accommodative, real rates are low, and further observation is needed,” pricing for another rate hike in December will gain support, Treasury yields may rise again, the dollar may strengthen, and gold and growth stocks may come under pressure.
If the minutes emphasize that “the recent rise in long-term yields has automatically tightened financial conditions,” that would leave the door open to pausing rate hikes. The market may interpret it as dovish, with Treasury yields falling, the dollar weakening, and precious metals and equity assets getting some breathing room.
The most subtle scenario is that the minutes neither commit to further rate hikes nor signal an end, emphasizing only data dependence.
In that case, the market will turn its attention to the subsequent CPI, nonfarm payrolls, and geopolitical developments, while the minutes themselves can provide only short-term volatility.
Based on current market pricing, expectations for a December rate hike remain above 50%, but voices saying that “September was just the beginning” are also growing louder. The minutes will become the most important “signpost” before the next directional decision.