Fed minutes show most officials expected another rate hike before year's end

Federal Reserve officials were unanimous in raising interest rates last month, and most expected to do it again before the end of the year, according to minutes from the central bank's September meeting released Wednesday.

The Federal Open Market Committee voted 12-0 on Sept. 16 to lift its benchmark rate a quarter point to a range of 3.75% to 4%, the first increase since 2023. The minutes show the support went beyond the voting members, with every participant in the meeting backing the move.

Most participants also judged that another increase "would likely be appropriate by year end," though officials stressed that future decisions would depend on incoming data.

The driver was inflation. Fed staff estimated that prices rose 3.8% in August from a year earlier, as measured by the central bank's preferred gauge, well above its 2% goal. Staff economists projected inflation would not return to 2% until 2029.

Officials pointed to energy prices, pushed higher by conflict in the Middle East, as a central concern. Many warned that the longer those prices stay elevated, the greater the chance they feed into broader price increases.

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The minutes also flagged a newer source of pressure: the artificial intelligence boom. Staff attributed part of the rise in inflation to higher prices for technology-related consumer goods tied to the AI buildout, and some officials said AI investment could push demand ahead of supply.

Officials acknowledged the toll on households, noting that higher energy costs were weighing most heavily on low- and moderate-income families.

The minutes capture the Fed's thinking before a key shift in the data. At the meeting, a majority of officials believed the labor market had strengthened. But the September jobs report, released Oct. 2, showed employers added just 29,000 jobs while unemployment rose to 4.2%.

That weaker reading has investors betting the Fed will hold rates steady when it next meets Oct. 27-28. The year-end language in the minutes leaves room for officials to wait until December, when they will have two more months of inflation and jobs data to weigh against Chair Kevin Warsh's pledge to bring prices back under control.