FOMC Minutes Show Most Participants Saw Year-End Hike as Likely

The Federal Reserve on October 7, 2026, released the minutes of the Federal Open Market Committee’s September 15–16, 2026 meeting, which record a unanimous 12–0 vote to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent and show that most participants assessed another increase in the target range would likely be appropriate by year end.

A joint meeting of the Committee and the Board of Governors opened in the Board’s offices on September 15, 2026, at 10:30 a.m., continued on September 16, 2026, at 9:00 a.m., and adjourned at 10:15 a.m. on September 16. The Fed’s meeting calendar lists the minutes as released October 7, 2026, in line with the Committee’s stated practice of publishing minutes three weeks after the date of the policy decision. The September meeting was associated with a Summary of Economic Projections: 18 participants submitted projections, one covering the period through 2027 and over the longer run and the others through 2029 and over the longer run, and the summary was released to the public following the conclusion of the meeting.

Voting for the policy action were Kevin Warsh, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Beth M. Hammack, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, Anna Paulson, Jerome H. Powell, and Christopher J. Waller; no member voted against. The statement approved on September 16, 2026 said economic activity is expanding at a solid pace, that inflation remains elevated, and that the Committee “will deliver price stability.” In the accompanying implementation note, the Board of Governors voted unanimously to raise the interest rate paid on reserve balances to 3.90 percent, effective September 17, 2026, and approved a 1/4 percentage point increase in the primary credit rate to 4.0 percent on the same effective date, acting on requests from the Federal Reserve Banks of Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas.

Participants’ Policy Discussion

All participants supported the quarter-point increase, judging it would support a timelier return of inflation to the Committee’s 2 percent goal. Many participants emphasized that a higher path for the target range would be prudent on risk-management grounds, providing insurance against inflation remaining persistently above target, while a number of participants viewed a higher path as necessary based on their modal outlooks. Several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive, and a couple remarked that they had increased their estimates of the neutral federal funds rate.

Looking beyond the meeting, most participants assessed that another increase in the target range would likely be appropriate by year end. Participants emphasized, however, that they approached each meeting with an open mind and that decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks.

Some participants expressed concern that, after more than five years of inflation above 2 percent, elevated inflation could begin to affect inflation expectations and wage- and price-setting decisions, and participants generally assessed inflation risk as skewed to the upside. On balance sheet policy, a few participants observed that Treasury markets had been functioning smoothly but stressed the importance of planning for market stress, suggesting the Federal Reserve strengthen its strategy, communications, and tools for addressing market dysfunction while limiting its footprint in the Treasury market.

Staff Estimates, Markets, and Desk Operations

Staff estimated that total PCE price inflation edged up to 3.8 percent in August and that core PCE inflation remained at 3.4 percent; under a new Bureau of Economic Analysis methodology to be implemented at the end of September 2026, staff estimated August total inflation of 3.6 percent and core inflation of 3.2 percent. The unemployment rate moved down to 4.1 percent in July and August. The employment cost index rose 3.3 percent over the 12 months through June, and average hourly earnings increased 3.1 percent over the 12 months ending in August, both measures below their year-earlier levels.

The staff projected inflation would decline over the remainder of the year and reach 2 percent in 2029. The inflation forecast was somewhat higher for 2026 through 2028 than the one prepared for the July meeting, while the outlook for economic activity and the labor market was stronger. Staff viewed risks to the inflation forecast as skewed to the upside and risks around the employment and real GDP forecasts as roughly balanced, and projected real GDP growth would outpace potential through 2028.

The manager of the System Open Market Account reported that the market-implied path for monetary policy rose notably over the intermeeting period, with market prices and outreach indicating investors placed high odds on a 25 basis point increase at the September meeting, and respondents to the Desk’s Survey of Market Expectations placing considerable probability on at least 25 basis points of firming by the end of the year. Nominal Treasury yields increased around 35 basis points across the 2- to 10-year segment of the yield curve; market commentary pointed to geopolitical developments, uncertainty related to the Treasury’s announcement and implementation of its buyback program, and competition for capital from heavy private debt issuance to finance artificial intelligence infrastructure as contributing to higher term premiums.

The manager observed that yield spreads on hyperscaler debt used to finance AI infrastructure remained wide and that equity prices moved up modestly on net, with companies that directly benefit from AI infrastructure investment outperforming; the year’s rise in equity prices was entirely attributable to strong actual and expected corporate earnings while price-to-earnings multiples declined. The trade-weighted dollar depreciated against the currencies of major foreign economies, with the joint U.S.–Japan intervention to support the yen in late July 2026 also contributing; the manager noted the Desk intervened purely as fiscal agent for the Treasury using Treasury funds and that the System Open Market Account was not involved.

Money market conditions remained stable, with the Tri-Party General Collateral Rate averaging 3 basis points below the interest on reserve balances rate and the effective federal funds rate averaging 2 basis points below it. Reflecting money market conditions and its reserve supply and demand assessments, the Desk paused reserve management purchases, and the manager said the pace of purchases was not on a preset course and decisions would continue to be made each month with the goal of keeping reserves within the ample range.

The directive approved at the meeting instructs the Desk to maintain the federal funds rate in a target range of 3-3/4 to 4 percent, conduct standing overnight repurchase agreement operations at a rate of 4.0 percent, conduct overnight reverse repurchase operations at an offering rate of 3.75 percent with a per-counterparty limit of $160 billion per day, purchase Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less when appropriate to maintain an ample level of reserves, roll over at auction all principal payments from Treasury holdings, and reinvest all principal payments from agency securities into Treasury bills.

The Committee set its next meeting for October 27–28, 2026. By a notation vote completed on August 18, 2026, the Committee unanimously approved the minutes of its July 28–29, 2026 meeting.