September FOMC Meeting Minutes Released; Possibility of Further Rate Hike Exists

The minutes from the Federal Reserve's September meeting were released a few moments ago, indicating that officials at the bank remain concerned about persistent inflation, with most believing that U.S. interest rates should be raised once more by the end of the year. The Federal Reserve raised rates by 0.25% in September, bringing them to a range of 3.75% to 4%, a decision supported by all committee members.

According to Mihan Blockchain, the minutes show that members of the Federal Open Market Committee (FOMC) still assess inflation to be above the desired level, while the labor market has stabilized and economic activity continues at a reasonable pace. Almost all members believed that another rate hike by the end of the year could be appropriate, although they emphasized that future decisions would depend on economic data and changes in risk balance.

Inflation Remains the Main Concern for the Federal Reserve

Based on the Federal Reserve's assessment, the Personal Consumption Expenditures (PCE) inflation rate reached 3.8% in August, with core PCE inflation estimated at 3.4%. Both figures have risen compared to last year and still show a significant gap from the central bank's 2% target.

Federal Reserve members identified rising energy prices, tariff impacts, and the sharp growth of AI-related investments as factors exerting pressure on prices. They also warned that if energy prices remain high for an extended period, rising costs could be transmitted to more sectors of the economy.

In this context, members assessed inflation risks as more tilted towards rising prices. Some also warned that sustained inflation above target for several years could gradually affect inflation expectations and the way wages and prices are set.

U.S. Economy Remains Resilient

Despite inflationary pressures, according to the minutes, there are no signs of a severe decline in economic activity in the Federal Reserve's assessment. GDP growth in the first half of the year has been adequate, and consumer spending and corporate investment continue to support the economy.

Widespread corporate investment in AI infrastructure has been one of the main factors behind this economic strength. Federal Reserve members also believe that these investments could increase the productivity and production capacity of the U.S. economy in the coming years, although there remains uncertainty about the size and timing of this effect.

The labor market is also viewed by the Federal Reserve as being close to full employment. The unemployment rate stood at 4.1% in July and August, and job growth increased in August. As a result, labor market risks have diminished compared to the past and are now assessed as nearly balanced.

Another Rate Hike by Year-End?

Almost all Federal Reserve members at the September meeting believed that another rate hike by the end of the year would likely be appropriate. They argued that a tighter monetary policy could accelerate the return of inflation to the 2% target and prevent high inflation from becoming entrenched.

Some members also stated that the current interest rate may not be sufficiently restrictive or may only be slightly restrictive. Consequently, maintaining higher rates for a longer period could serve as a barrier against the persistence of inflation from a risk management perspective.

However, the Federal Reserve has emphasized that decisions for future meetings are not predetermined, and data related to inflation, the labor market, and economic conditions will guide the monetary policy path.

Markets Await Next Federal Reserve Decision

The minutes also indicate that U.S. Treasury yields have risen by about 35 basis points across two meetings in the 2 to 10-year maturities. Short-term inflation expectations, increased expectations for interest rates, and geopolitical tensions have been cited as factors behind this movement.

The Federal Reserve predicts that inflation will decrease in the coming years, ultimately reaching the 2% target by 2029. However, the new inflation forecast for the years 2026 to 2028 has been raised compared to previous estimates, indicating that the path for inflation to return to target may still be longer than expected.

The next Federal Reserve meeting will take place on October 27 and 28, and now markets must pay attention not only to inflation data but also to new signals regarding the possibility of another rate hike in this meeting and the December meeting.