The minutes of the September 15-16 meeting, released on Thursday (October 8) Beijing time, showed that the Federal Open Market Committee unanimously supported raising interest rates by 25 basis points to 3.75%-4% by a vote of 12-0, with most participants believing that another rate hike before the end of the year might be appropriate.

Consensus on uniform interest rate hikes and further tightening before the end of the year

The Federal Open Market Committee (FOMC) voted 12-0 to raise the target range for the federal funds rate by 25 basis points to 3.75%-4%. Participants noted that inflation remained high, the labor market was near full employment with some signs of strengthening, and economic growth was robust. Almost all participants judged that while inflation risks were skewed to the upside, employment risks had subsided, and the situation was now roughly balanced. Most participants believed that further rate hikes before the end of the year were likely appropriate, while emphasizing that the decision would depend on subsequent data.

Inflation Progress Stagnates: Energy and AI Investments Create Dual Pressure

Officials said they have not seen enough progress in reducing inflation in recent months. They cited geopolitical developments pushing up crude oil and refined product prices, and a surge in AI-related investment as major sources of pressure. Several participants warned that the longer energy prices remain high, the greater the risk that rising costs in specific sectors will spread to broader price pressures. Some officials worried that inflation exceeding the target for more than five years could begin to affect expectations, as well as wage and price settings. Staff revised upward their inflation forecasts for 2026-2028 and expect inflation to reach the 2% target only by 2029.

Policy stance divergence: Insurance-driven interest rate hikes or necessary interest rate hikes?

Participants were divided on the rationale for tightening policy. Most viewed a higher interest rate path as a prudent safeguard against persistent inflation, while a significant number believed a rate hike was necessary based on their core economic outlook. A few participants indicated they had revised upward their estimates of the neutral interest rate, and several believed that even after a rate hike, policy would remain unrestricted or only slightly restrictive. This assessment suggests that officials still see room for further tightening if inflation fails to subside as expected.

Economic Landscape: AI Development Exceeds Expectations, Squeezing Low-Income Families

Officials noted that the scale and speed of AI development continue to exceed expectations, boosting business investment. Several participants observed that rising stock markets supported spending by high-income households, while low- and middle-income households were squeezed by rising energy costs. The labor market is considered close to full employment, with an unemployment rate of 4.1%, and most participants believed there were some signs of recent strengthening. Looking ahead, participants said they would approach each meeting with an open mind. The committee's next meeting is on October 27-28, where inflation data and energy market dynamics will determine whether the next rate hike will be brought forward or postponed.

Editor's Summary

The meeting minutes generally adopted a hawkish stance, with a consensus on rate hikes and a majority supporting further tightening before the end of the year reinforcing the signal of a tightening policy path. Stagnant inflation, high energy prices, and a surge in AI investment were explicitly listed as three major upside risks. Staff postponed the 2% target to 2029, indicating policymakers' vigilance regarding the persistence of price pressures. In the short term, the market will closely watch inflation and energy data ahead of the October meeting to determine the timetable for the next rate hike.

Frequently Asked Questions

Q: Why did the Fed unanimously decide to raise interest rates by 25 basis points at its September meeting? A: Participants believed that inflation remained high, the labor market was near full employment and showing signs of strengthening, and economic growth was robust. Inflation risks were skewed to the upside while employment risks had subsided, and policy needed to respond promptly to support a faster return to the 2% target. Q: How likely is another rate hike before the end of the year? A: Most participants judged that a further rate hike before the end of the year might be appropriate, but emphasized that it depended entirely on subsequent data. Both the October and December meetings remained "live," and the market needs to pay attention to the upcoming inflation and energy data. Q: Why is it difficult for inflation to fall quickly? What are the main risks? A: Recent months have seen insufficient progress in reducing inflation. Geopolitical factors pushing up energy prices and a surge in investment in artificial intelligence leading to demand and cost pressures are the main reasons. Staff expect inflation to return to 2% only by 2029. If energy prices remain high, it could spread to broader price levels. Q: Is the current policy rate already restrictive? A: Some officials have raised their estimates of the neutral interest rate, and several participants believed that even after the rate hike, policy would not be restrictive or only slightly restrictive. This means that if inflation remains persistent, there is still room for further tightening. Q: What impact will AI investment have on the economy and policy? A: The scale and speed of AI development have exceeded expectations, boosting corporate investment and supporting spending by high-income households, but also pushing up prices of related goods and overall inflationary pressures. This makes AI an important upside risk factor in policy considerations, while simultaneously supporting growth.