Most US Federal Reserve policymakers think one more interest rate increase will probably be needed before the end of 2026. That is the main message of the minutes of the Federal Open Market Committee meeting held on 15 and 16 September, which the Fed released on 7 October.
At that meeting the committee, chaired by Kevin Warsh, raised the federal funds target range by a quarter of a percentage point to 3.75 to 4 per cent. The vote was unanimous, and the minutes record that all participants supported the increase.
Why the Fed raised rates
Inflation is the reason. Participants said it remained elevated and that they had not seen enough progress in bringing it down in recent months. They pointed to geopolitical developments that had pushed up the prices of crude oil and refined fuels, and to heavy spending on artificial intelligence, as sources of price pressure.
Officials saw the jobs market as close to maximum employment, and a majority said it had strengthened a little. Several noted unusually low rates of hiring and layoffs. Some said strong demand for skilled workers in AI-related fields was pushing up pay for those workers, though others said overall wage growth was moderate.
Fed staff expect inflation to step down over the next two years and reach 2 per cent in 2029, a forecast a little higher than the one prepared in July. Participants generally judged that the risks to inflation were tilted upward, and some said that tilt had grown in recent months.
What the minutes say about the next move
The key line reads: "most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end." The minutes add that officials approach each meeting with an open mind and that decisions depend on incoming data. The committee's remaining meetings this year are on 27 and 28 October and on 8 and 9 December.
Many participants described a higher rate path as sensible risk management, a kind of insurance against inflation staying above target. The account of the Fed's markets desk notes that investors had already priced in high odds of a September hike, and that yields on 2 to 10-year Treasuries rose about 35 basis points between the July and September meetings.
Alongside the decision, the Fed's Board raised the interest rate it pays on reserve balances to 3.90 per cent and the primary credit rate to 4 per cent, both from 17 September.
Growth, AI and financial conditions
Fed staff now expect growth to pick up in the second half of 2026 and run above its potential rate through 2028, helped by strong business investment and solid consumer spending, with unemployment staying below the staff's long-run estimate through 2029. Participants said the AI buildout had kept surprising on the upside.
On financial conditions, many participants said that despite higher long-term yields, conditions still supported growth, with share prices up strongly this year and corporate bond spreads narrow. Housing was singled out as an exception. Officials also discussed productivity, judging trend growth to be about in line with its historical average, and said AI should lift productivity in coming years, though the size and timing of that effect are very uncertain.
Why it matters in India
US interest rates travel well beyond the US. A higher rate outlook and rising Treasury yields can affect the rupee, the cost of dollar loans for Indian companies and the interest offered on foreign currency deposits held by non-resident Indians. Families paying US tuition or sending money between the two countries also feel any move in the exchange rate.
The Reserve Bank of India raised its repo rate by 25 basis points to 5.50 per cent on 7 October with this backdrop in view, as we explained in our piece on the global picture behind the RBI's October policy. The minutes do not say anything about India directly.
Fed officials will see more inflation and employment data before the 27 and 28 October meeting, following a September jobs report that showed 29,000 jobs added. The minutes are a record of the September debate, not a promise about October. This is information, not advice.
