The minutes of the Federal Reserve's September meeting will be released at 2:00 AM Beijing time on Thursday (October 8). The market will focus on a core question: given the significantly weaker data following the September meeting, how strongly the committee adheres to its guidance of "one more rate hike this year"? In September, the Fed unanimously approved a 25 basis point rate hike. Policymakers' forecasts point to another rate hike in 2026, but their views on 2027 are widely divided—eight participants expect at least two more rate hikes, six expect one, and four expect rate cuts from current levels. However, the weak September non-farm payrolls and weak August PCE data released after the meeting have overshadowed the events in the minutes. The market's pricing in an October rate hike has fallen to less than a quarter. The tone of the minutes will therefore be crucial—if it shows a meaningful dovish camp within the committee, it will confirm the market's repricing; if the tone is clearly hawkish, it may leave room for a repricing of an October rate hike.

Market pricing has shifted significantly, with the probability of an October rate hike falling to less than 25%.

Data changes following the September meeting are key to understanding current market pricing. A weak September non-farm payroll report and subdued August PCE inflation data led the market to significantly lower its expectations for further Fed rate hikes. Current pricing suggests a less than one-in-four chance of a rate hike at the October meeting, down from earlier last week. The logic behind this repricing is clear: if job growth slows significantly and inflationary pressures ease, the urgency for further Fed rate hikes decreases. However, the problem lies in the fact that the minutes reflect discussions from the September meeting, when the data had not yet softened. Therefore, there is a time lag between the minutes and current data, and the market needs to assess just how strong the committee's conviction is regarding a "one more rate hike" guidance.

September forecast: Unanimous vote on interest rate hike, but significant disagreement on the path to 2027.

Looking back at the September meeting, the Federal Reserve unanimously approved a 25-basis-point rate hike, stating that this move would help bring inflation back to its target more promptly. Policymakers' forecasts point to one more rate hike in 2026, but their views on 2027 are widely distributed—eight participants expect at least two more rate hikes, six expect one, and four expect a rate cut from current levels. This distribution itself illustrates a significant divergence within the committee regarding the end of the tightening path. The meeting minutes may reveal that, despite the unanimous vote, differing views emerged in the discussions regarding the necessity of further rate hikes. The extent to which this divergence is exposed will directly impact market pricing for the October and December meetings.

Officials recently stated that they are not in a hurry to act, but there is a divergence between hawks and doves.

Recent statements from officials point to a committee that is "not in a hurry to act." New York Fed President Williams and Vice Chairman Jefferson have indicated they see no need to rush into further rate hikes, although Williams still believes another rate hike this year is reasonable. Governor Bowman, however, has indicated a preference for no further rate hikes until 2026; her speech on Tuesday could be an early signal before the release of the meeting minutes. This divergence means the minutes could reveal a more complex picture than the market is currently pricing in. If the minutes show a significant group uneasy about further rate hikes, it will reinforce the market's dovish pricing; if the minutes emphasize the risks of persistent inflation and a premature halt, it could lead traders to re-price an October rate hike.

Market Impact: Asymmetric Risk and Asset Price Transmission

The meeting minutes carry asymmetric risks for the market. For a market that has already priced in most of the possibility of an October rate hike, a dovish set of minutes would confirm this repricing and could prolong the weakening of front-end Treasury yields and the dollar. This would provide some support for gold—which had previously been pressured by rate hike expectations. A hawkish set of minutes, emphasizing persistent inflation, could increase the probability of an October rate hike and push yields up again. Energy prices are another variable to watch. Due to the conflict in Iran, energy prices remain high. Any discussion in the minutes about the transmission of oil prices to inflation will be closely watched, as this could provide officials with a reason to maintain tightening despite weak activity data. The existence of this channel means that even if employment and inflation data weaken, the Fed may not easily abandon its tightening stance.

Editor's Summary

By the time the September meeting minutes were released, the market had already significantly lowered the probability of an October rate hike to less than 25% based on weak employment and moderate inflation data. The unanimous rate hike and the dot plot's indication of another rate hike in 2026, coupled with the subsequent softening data, created a time lag. Officials' statements revealed a lack of urgency but internal divisions. The tone of the minutes will be a key window into the committee's conviction; a dovish stance will confirm repricing and benefit front-end bonds and gold, while a hawkish stance may reignite expectations of a rate hike. Discussions on energy price transmission are also worth noting, and geopolitical factors may still support a tightening bias.

Frequently Asked Questions

Q: Why has the market priced in an October rate hike significantly? A: The non-farm payrolls data released after the September meeting showed only a 29,000 increase and weak PCE data, indicating a slowdown in employment and easing inflationary pressures. This has reduced the urgency of further rate hikes, with the probability now below 25%. Q: What were the main decisions and forecasts of the September Fed meeting? A: The Fed unanimously approved a 25 basis point rate hike to 3.75%-4.00%. The dot plot shows a median expectation of another rate hike in 2026, but there is significant disagreement regarding the path in 2027, with some calling for continued rate hikes and others for rate cuts. Q: What is the time lag between the meeting minutes and current data? A: The minutes reflect the discussions at the September meeting, when employment and inflation data had not yet softened. The market needs to determine whether the committee's belief in the "one more rate hike" guidance has been shaken by the post-meeting data. Q: What are the characteristics of recent statements from Fed officials? A: Williams and Jefferson indicated they were in no hurry to raise rates further, while Bowman favored no further rate hikes until 2026, showing a division within the committee and an overall bias towards observation rather than immediate action. Q: What asymmetric impact might the meeting minutes have on the market? A: A dovish minute would confirm a low probability of rate hikes, potentially suppressing front-end yields and the dollar, and supporting gold; a hawkish minute, on the other hand, could push up expectations of an October rate hike and increase yields. Discussions on the transmission of energy prices to inflation are also attracting attention.