Fed Officials See Another Rate Increase as Potentially Appropriate

Federal Reserve officials viewed another interest-rate increase as potentially appropriate by year-end, but left the timing dependent on incoming data as inflation remains above the central bank’s 2% goal.

The Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points on Sept. 16, bringing it to 3.75%-4%. The decision took effect Sept. 17 and marked the first increase since the current tightening sequence began.

“Inflation remains elevated,” the committee said in its policy statement.

Minutes from the meeting showed that most FOMC participants considered another increase likely appropriate by the end of 2026. The discussion did not establish a preset schedule for another hike.

Headline personal consumption expenditures inflation rose 3.4% in the 12 months through August, while core PCE inflation rose 3.0%. The figures keep both measures above the Fed’s 2% target.

Economic data also pointed to weaker labor-market momentum. U.S. nonfarm payrolls increased by 29,000 in September, while the unemployment rate stood at 4.2%. Real gross domestic product grew at a 2.2% annual rate in the second quarter.

Beth Hammack, president and CEO of the Federal Reserve Bank of Cleveland, said Oct. 12 that inflation pressures were broad-based and supported maintaining a restrictive policy stance.

“When feasible, I generally think it’s preferable to make smaller adjustments, and to do so relatively quickly,” Hammack said.

The European Central Bank raised its three key interest rates by 25 basis points on Sept. 10. Effective Sept. 16, the ECB’s deposit facility rate was 2.50%, its main refinancing rate was 2.65% and its marginal lending rate was 2.90%.

The Fed and ECB both raised rates in September, though their decisions do not demonstrate a synchronized global rate-hike cycle. The Fed’s next policy meeting is scheduled for Oct. 27-28.