#美联储9月纪要偏鹰 Fed minutes signal hawkish stance: another hike possible by year-end, but no move in October is certain

Minutes released by the Federal Reserve on Wednesday (October 7) showed that most officials believed another rate hike may still be needed before year-end to curb inflation that remains above target. However, the minutes did not specify when the next move would come, while recently softer-than-expected inflation data and cautious remarks from several officials have also cooled expectations of an immediate October hike.

The Federal Reserve will announce its two remaining rate decisions this year on October 28 and December 9. Although further rate hikes remained the policy direction expected by most officials, they emphasized that each meeting would be approached with an open mind, with decisions based on newly released information and its implications for the economic outlook and balance of risks.

Another hike by year-end remains the expectation of most officials
On September 16, the Federal Reserve unanimously agreed to raise the target range for the federal funds rate by 25 basis points to 3.75%–4%. The minutes showed that officials believed inflation remained elevated, the labor market was close to full employment, and economic activity continued to expand steadily, factors that together supported raising the policy rate. Most participants judged that another increase in the target range for the federal funds rate before year-end could be appropriate.

Many officials supported a higher interest-rate path from a risk-management perspective, hoping to provide protection against persistent inflation caused by stronger-than-expected demand growth or new adverse supply shocks.

The September economic projections also reflected this tendency. Of the 18 officials who submitted projections, 16 expected at least one more rate hike before year-end. The median rate projection pointed to one more hike this year, followed by unchanged rates in 2027.

Federal Reserve Chair Kevin Warsh has not submitted personal economic projections since taking office in May this year. Why have expectations for an October hike cooled?
At a press conference after the September meeting, Warsh made hawkish remarks on inflation and described the hike as removing “some of the accommodation.” Wall Street interpreted the comment as a potential signal of further rate hikes, and the market at one point increased its bets on another move in October.

However, inflation data released after the meeting gave policymakers more room to observe. The Federal Reserve’s preferred personal consumption expenditures (PCE) price index showed core inflation at 3% year-on-year in August and headline inflation at 3.4%. Both figures remained significantly above the 2% target, but both were below previous expectations, with part of the decline related to adjustments in the methodology used to calculate certain statistical items.

Meanwhile, several Federal Reserve officials emphasized that the central bank did not need to rush into another hike and could first observe economic developments and the effects of the September policy adjustment. Therefore, another hike by year-end remains possible, but that does not mean the Federal Reserve has decided to act in October.

Inflation expectations and Treasury yields continue to exert pressure
What has kept the Federal Reserve on alert is that inflation has remained above target for more than five consecutive years. Officials worried that if price increases persisted for too long, they could affect the public’s inflation expectations and further feed into wage and corporate pricing decisions. Short-term inflation expectations have also shown signs of heating up. A survey released by the New York Fed on Wednesday showed that consumers’ expectations for price increases over the next year rose to their highest level since May 2023.

Market-based inflation measures remain elevated, indicating that recent improvements have not yet been sufficient to eliminate price pressures completely. U.S. Treasury yields have also continued to rise, remaining near their highest levels since 2002. The minutes discussed multiple factors behind the rise in yields, including market expectations for higher policy rates, solid economic growth, and substantial financing demand generated by artificial intelligence infrastructure construction. Staff also noted that uncertainty triggered by the U.S. Treasury’s announcement and implementation of a Treasury buyback program may have contributed to the rise in yields.

Treasury Secretary Scott Bessent announced in August that buybacks of outstanding long-term Treasuries would be expanded, but the arrangement has not yet significantly lowered long-term yields.

For the market, the focus now is on whether the improvement in inflation can continue and whether new data will be sufficient for the Federal Reserve to delay action. Another hike by year-end remains the expectation of most officials, but the exact timing will depend on subsequent economic performance.