Fed minutes show officials split on what would rule out another rate hike
In brief
- Fed officials unanimously raised the main rate to 3.75%-4% in September, minutes released Oct. 7 show.
- Most participants expected another hike by year-end, though their reasons differed.
- Officials didn't agree on a set of conditions that would rule out another increase.
- CryptoSlate's analysis says the Fed can stop before 2% if inflation is already heading there.
What the minutes showed
Most officials at the September meeting weren't convinced inflation was heading toward 2% without another increase, according to CryptoSlate's summary of the minutes. Strong spending and persistent price increases outweighed the strain that expensive borrowing put on parts of the economy.
The split was over why. Many participants saw higher rates as insurance against lasting inflation, while others thought the economy would need higher rates anyway.
Officials described higher energy costs alongside heavy spending on equipment and data centers for artificial intelligence. Some businesses appeared better able to pass costs on to customers, and several participants pointed to continued price increases in services other than housing. Officials still thought people expected inflation to settle around the 2% goal over time (their worry was that more years above target could lead workers to seek larger raises and businesses to plan bigger price increases).
A mixed read on jobs
Participants generally saw steady employment with relatively few people out of work. Most thought the labor market had strengthened somewhat, which gave the Fed room to act against inflation. It wasn't a clean picture, though. Several noted that hiring and layoffs were both unusually low, while people out of work had difficulty finding another job. Some said wage growth was consistent with inflation returning to 2%, or that the jobs market wasn't currently driving inflation.
The minutes also noted a planned revision to the inflation calculation that would reduce how much software prices and investment-management fees add to the reported rate.
What would make the Fed wait
CryptoSlate's analysis, written by Andjela Radmilac, argues the Fed can stop raising rates before inflation reaches 2% if officials believe the economy's already heading there without another increase.
"Repeated reports showing slower price increases across different purchases would give the Fed more reason to wait."
The analysis cautions that a lower reading from the revised calculation doesn't mean businesses have reduced their price increases. It also says the Fed's responsibility to support employment limits how far it should go in making borrowing more expensive.
That's CryptoSlate's interpretation, not Fed policy, and the minutes themselves show no consensus on what would take another hike off the table.
Frequently asked questions
What did the Fed decide at its September meeting?
The Fed unanimously raised its main interest rate to 3.75%-4%, according to minutes released Oct. 7. Most participants expected another hike by year-end, though officials didn't agree on a set of conditions that would rule one out.
What could stop the Fed from raising rates again?
CryptoSlate's analysis says the Fed can stop raising rates before inflation reaches 2% if officials believe the economy is already heading there without another increase. Repeated reports showing slower price increases across different purchases would give the Fed more reason to wait, according to the analysis.
Does the planned inflation calculation revision mean price pressures are easing?
Not necessarily. The minutes noted the revision would reduce how much software prices and investment-management fees add to the reported rate. CryptoSlate's analysis says a lower reading from a revised calculation doesn't mean businesses have reduced their price increases.
