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Fed signals rate hikes in the U.S. through the end of the year
Fed moves closer to another rate hike
The minutes from the Fed‘s September meeting show that most members of the central bank still see room for another increase in U.S. interest rates this year. The notes from the 15-16 September meeting also indicate that some participants judged the current level of rates to be not restrictive enough, meaning it is not slowing the economy sufficiently.
The minutes also stressed, however, that decisions at upcoming meetings will depend on incoming data and its impact on the outlook for the economy and the balance of risks. That means the central bank is leaving itself the option of either continuing to tighten policy or pausing if the macroeconomic picture starts to change.
The minutes also included comments that a higher rate path would be a sensible safeguard against a scenario in which inflation stays too high for too long. Some Fed members even said such a move would be needed not only as a precaution, but also because of their most likely forecasts.
According to the minutes, some participants are worried that persistent inflation could weaken inflation expectations. Others pointed to the risk of further pass-through of higher costs into retail prices if companies continue to operate for an extended period under elevated energy and materials costs.
Inflation, AI and an economy growing at a solid pace
The Fed expects inflation to remain elevated in the near term before gradually moving back toward 2 proc. The minutes also mention artificial intelligence, which, according to members of the bank, is driving corporate investment and supporting economic activity.
Meeting participants said the economy is growing at a solid pace. Strong business investment and resilient consumer spending are helping, despite adverse supply shocks related to the geopolitical situation.
The document also says consumer spending remains high, and stock market gains are especially supporting higher-income households. At the same time, lower- and middle-income households are feeling higher energy prices more acutely, which is limiting their real disposable income.
After the 15-16 September meeting, Fed raised interest rates to 3,75-4,00 proc. The FOMC decision was unanimous. Analysts surveyed by Bloomberg had expected a 25 bp increase.
The next Federal Reserve meeting is scheduled for 27-28 October. After the minutes were published, the dollar strengthened against a basket of currencies by 0,4 proc. to 102,25 pts., while the yield on 10-year Treasuries rose by 1 bp.
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