Minutes from the Federal Reserve's 15-16 September meeting show policymakers unanimously backed a quarter-point rate rise to 3.75-4%, and most already expected another increase before year end. Officials pointed to elevated oil prices and a surge in AI-related investment as the forces keeping inflation risk tilted to the upside.
The Federal Open Market Committee voted 12-0 to lift the federal funds target range by a quarter point to 3.75-4%, according to minutes released Wednesday. Most participants judged that a further increase would likely be appropriate by year end, while stressing that the decision would depend on incoming data.
Inflation progress stalls
Officials said they had not seen enough progress on bringing inflation down in recent months. They cited geopolitical developments that pushed up crude oil and refined fuel prices, alongside a surge in AI-related investment, as key sources of pressure. Many participants warned that the longer energy prices stayed high, the greater the risk that sector-specific cost increases would spread into broader price pressures.
Fed staff estimated that headline PCE inflation rose 3.8% in the year to August, with the core measure at 3.4%. Staff raised their inflation forecasts for 2026 through 2028 and now project inflation will not reach the 2% goal until 2029.
Labour market still near full employment
Participants pointed to a labour market close to full employment with some signs of strengthening, alongside solid economic growth. Almost all judged that while inflation risks were tilted to the upside, risks to employment had faded and were now broadly balanced.
Opinions differed on the rationale for tightening further. Many participants saw a higher rate hike path as prudent insurance against persistent inflation, while a number viewed it as necessary based on their central economic outlook. A couple said they had raised their estimates of the neutral interest rate, and several suggested policy was not restrictive, or only mildly so, even after the hike.
The committee next meets on 27-28 October. Officials noted that the scale and pace of the AI buildout had continued to surprise to the upside and was boosting business investment.
Source: investingLive
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