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Fed Officials See More Work to Tackle Inflation
Confirmed
In Short: Federal Reserve policymakers see more work ahead to quell inflation, according to minutes from their September meeting.
Federal Reserve policymakers see more work ahead to quell inflation, according to minutes from their September meeting released Wednesday. The minutes showed that officials unanimously agreed to raise the federal funds rate by a quarter percentage point to a range of 3.75% to 4%, but did not see that move as the start of a rapid sequence of hikes.
Most participants at the September meeting expected one more hike by year end, but stressed decisions would depend on incoming data. The minutes revealed that policymakers were increasingly focused on upside inflation risks, a resilient economy, and the possibility that strong AI investment could add to demand pressures.
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) Prices Index, showed that inflation remained steady in August. Total PCE inflation was estimated at 3.8% in August and core PCE at 3.4%, with officials describing risks to the inflation outlook as skewed to the upside.
The minutes also highlighted that the composition of the inflation increase is becoming more important for the ECB than the headline number alone. Core inflation, which excludes volatile energy and food components, was 2.5%, matching expectations.
According to the Bureau of Labor Statistics (BLS), gasoline prices rose 3.9% last month alone, accounting for more than a third of inflation overall. This stability has helped keep consumers spending, but with wages trailing inflation since April, it means fewer chances to move to a better-paying job.
U.S. employers added just 29,000 jobs in September 2026, and the unemployment rate rose to 4.2%. Openings hit their lowest level since March, and pay growth trails inflation, leaving employers weighing hiring plans.
The rising rates come as property market activity shows signs of weakening, with inflation currently running at 3.1%. The average two-year fixed mortgage has risen to its highest level since July 2024, while the average five-year home loan rate has reached its highest point since October 2023.
The US Dollar Index (DXY) remains well bid on Wednesday, keeping its trade above the 102.00 yardstick as investors continue to assess the latest release of the FOMC Minutes. The US Dollar sits near an 18-month high, supported by Wednesday's hawkish FOMC Minutes and the risk of a further escalation of tensions in the Middle East.
When volatile food and energy costs are factored out, the Federal Reserve’s preferred measure of inflation increased 3.0% from one year ago, below expectations. Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said that the August PCE inflation report was mixed and that 'Inflation was stable on the month, but the trend was revised lower.'
Those odds were essentially split evenly yesterday, while a week ago the CME FedWatch tool showed a 70.9% chance of an October rate hike. Meanwhile, the table below shows the percentage change of US Dollar (USD) against listed major currencies today.
Bessent defended his controversial bond-buyback program before Congress on September 15, clashing with Democrats over whether tariffs are driving inflation as the economy confronts 10-year Treasury yields topping 5 percent for the first time since 2007. Bessent defended the buyback strategy methodically, while lawmakers from both parties pressed him on inflation, tariffs, and America's international standing.
The Bank of Japan raised interest rates to a more than 30-year high on Friday and said it would lift them further as it looks to counter inflation fuelled by surging energy prices and a weak yen. Core inflation fell to 1.7 percent in August from 1.8 percent but remains close to the BoJ's two percent target.
What this adds
The minutes from the September meeting show that policymakers are increasingly focused on upside inflation risks, a resilient economy, and the possibility that strong AI investment could add to demand pressures. This adds to the understanding that the Fed sees more work ahead to quell inflation.
Background
Federal Reserve policymakers see more work ahead to quell inflation, according to minutes from their September meeting.
European Central Bank President Christine Lagarde said Thursday that more interest rate increases may be necessary to quell inflation, which is currently above the bank’s target of 2%. Lagarde’s remarks were closely watched by market analysts and investors.
What's confirmed
- Federal Reserve policymakers see more work ahead to quell inflation, according to minutes from their September meeting released Wednesday. The minutes showed that officials unanimously agreed to raise the federal funds rate by a quarter percentage point to a range of 3.75% to 4%, but did not see that move as the start of a rapid sequence of hikes.
- Most participants at the September meeting expected one more hike by year end, but stressed decisions would depend on incoming data. The minutes revealed that policymakers were increasingly focused on upside inflation risks, a resilient economy, and the possibility that strong AI investment could add to demand pressures.
- The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) Prices Index, showed that inflation remained steady in August. Total PCE inflation was estimated at 3.8% in August and core PCE at 3.4%, with officials describing risks to the inflation outlook as skewed to the upside.
- The minutes also highlighted that the composition of the inflation increase is becoming more important for the ECB than the headline number alone. Core inflation, which excludes volatile energy and food components, was 2.5%, matching expectations.
- According to the Bureau of Labor Statistics (BLS), gasoline prices rose 3.9% last month alone, accounting for more than a third of inflation overall. This stability has helped keep consumers spending, but with wages trailing inflation since April, it means fewer chances to move to a better-paying job.
- U.S. employers added just 29,000 jobs in September 2026, and the unemployment rate rose to 4.2%. Openings hit their lowest level since March, and pay growth trails inflation, leaving employers weighing hiring plans.
- The rising rates come as property market activity shows signs of weakening, with inflation currently running at 3.1%. The average two-year fixed mortgage has risen to its highest level since July 2024, while the average five-year home loan rate has reached its highest point since October 2023.
- The US Dollar Index (DXY) remains well bid on Wednesday, keeping its trade above the 102.00 yardstick as investors continue to assess the latest release of the FOMC Minutes. The US Dollar sits near an 18-month high, supported by Wednesday's hawkish FOMC Minutes and the risk of a further escalation of tensions in the Middle East.
- Those odds were essentially split evenly yesterday, while a week ago the CME FedWatch tool showed a 70.9% chance of an October rate hike. Meanwhile, the table below shows the percentage change of US Dollar (USD) against listed major currencies today.
- Bessent defended his controversial bond-buyback program before Congress on September 15, clashing with Democrats over whether tariffs are driving inflation as the economy confronts 10-year Treasury yields topping 5 percent for the first time since 2007. Bessent defended the buyback strategy methodically, while lawmakers from both parties pressed him on inflation, tariffs, and America's international standing.
- The Bank of Japan raised interest rates to a more than 30-year high on Friday and said it would lift them further as it looks to counter inflation fuelled by surging energy prices and a weak yen. Core inflation fell to 1.7 percent in August from 1.8 percent but remains close to the BoJ's two percent target.
What's still developing
- “Raising rates to weaken demand doesn’t address the root cause behind supply shock-driven inflation,” Tom Barkin, president of the Federal Reserve Bank of Richmond, said back in May.
- First, she mentions that they should not put "too much emphasis" on the inflation numbers due tomorrow.
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- The July minutes showed hawkish sentiment extended well beyond the three dissenters, with some officials warning that current financial conditions might not be tight enough to bring inflation back to 2%.
- Inflation was running at 3.4% at the time of the hearing, which examined Treasury's decision to expand its longer-dated bond buybacks, which the department has said were intended to support liquidity in the market.