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Most Federal Reserve officials believed another increase in the US policy rate would likely be appropriate by the end of 2026, even as they acknowledged that future decisions would depend on incoming economic data and the evolving balance of risks, according to the minutes of the Federal Open Market Committee's September meeting.
"Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes said, signalling that the rate-hike cycle could continue after the quarter-point increase delivered at the September meeting. The FOMC had unanimously raised the federal funds target range by 25 basis points to 3.75-4 per cent at the September 15-16 meeting, citing elevated inflation, a labour market close to full employment and solid economic activity. The minutes showed that inflation remained the key concern for policymakers. Participants said they had not seen sufficient progress in bringing inflation lower and generally assessed inflation risks as tilted to the upside. Higher energy prices, geopolitical developments and the ongoing artificial intelligence (AI) investment buildout were identified as factors adding to price pressures. Against this backdrop, US Treasury yields had risen sharply ahead of the release of the minutes. The 30-year Treasury yield briefly touched 5.7041 per cent on Wednesday, a fresh 24-year high, as concerns over persistent inflation, higher government debt and rising crude oil prices weighed on global bond markets. The concerns around higher energy prices also featured prominently in the Fed's discussions on the inflation outlook. Several officials warned that prolonged elevated energy prices could allow higher costs to spread across sectors, while the AI buildout could eventually push demand above supply and add to inflation. Some participants were concerned that inflation remaining above 2 per cent for more than five years could begin affecting wage- and price-setting behaviour. At the same time, policymakers saw the labour market as broadly stable, with risks now more balanced. Economic activity was expanding at a solid pace, supported by resilient consumer spending and strong business investment. The minutes said the scale and pace of the AI buildout had continued to "surprise to the upside". The Fed's staff projected inflation would decline over the next two years and reach its 2 per cent objective in 2029, while economic growth was expected to pick up in the second half of 2026 and remain above potential through 2028. However, the staff continued to see substantial uncertainty, particularly around inflation, AI investment and geopolitical developments. Officials stressed that another rate increase was not predetermined. "Decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks," the minutes said. The approach will be put to the test at the FOMC's next policy meeting, scheduled for October 2728, when policymakers will again assess economic and inflation developments. (ANI)
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