Most Federal Reserve officials expected another rate increase would be appropriate by the end of the year even as they raised the benchmark rate in September, according to minutes from the Federal Open Market Committee's Sept. 15-16 meeting released on Wednesday. At that meeting the FOMC raised the federal funds rate target range by 25 basis points to 3.75%-4.00%, its first rate hike in more than three years, as it seeks to rein in inflation that has remained elevated for more than five years. The minutes said many participants emphasized that a higher path for the target range would be prudent on risk-management grounds, providing insurance against inflation remaining persistently above target, while a number of participants viewed a higher path as necessary based on their modal outlooks. Several participants considered the current policy rate of 3.50%-3.75% to be not restrictive or only mildly restrictive, and officials assessed that economic activity was expanding at a solid pace, citing robust business investment and resilient consumer spending. On the balance sheet, a few participants stressed the importance of planning for market stress even as Treasury markets had been functioning smoothly, and members generally considered trend productivity growth to be roughly in line with the historic average and somewhat higher than before the pandemic, though a few pointed to risks from rapid AI adoption that could drag on productivity.
Fed minutes show most officials saw another rate hike as likely, implying a higher path for the federal funds rate.
Expectations of further Fed rate hikes and a higher policy path push Treasury yields higher.
