Fed minutes show most policymakers see another rate hike by year end

The Federal Reserve's September monetary policy meeting minutes reveal that the vast majority of policymakers foresee another interest rate increase by the end of the year. Following a unanimous 25 basis point hike to a 3.75%-4.00% range in September, marking the first rate increase in over three years, the Federal Open Market Committee (FOMC) and the updated dot plot both indicated ongoing rate hikes.

Fed Chair Kevin Warsh stated that the hike aimed "to support a timelier return" to the FOMC's long-term inflation target of 2%. While participants acknowledged the potential for future rate hikes after the meeting, they maintained an open-minded approach, emphasizing that decisions would hinge on incoming information and implications for the outlook and risk balance.

Concurrently, the minutes indicated that each FOMC participant endorsed rate hikes during the September meeting. Economic indicators have since cooled, including U.S. personal consumption expenditures (PCE) prices rising 3.4% year-over-year in August and core PCE up 3% year-over-year, both lower than expected and matching July's figures.

Q2 real GDP growth was revised upward to 2.2% from 1.5%. Later, the September nonfarm payrolls report showed only 29,000 jobs added, the weakest pace of hiring in the year. The combination of strong economic growth, high inflation, and signs of a slowing labor market typically suggests a steady interest rate, which aligns with the recent decline in Fed rate odds, down to nearly 81% for a steady rate later this month from about 54% a month ago.