Fed officials expect another rate hike will be needed this year (meeting minutes)

Most Federal Reserve officials expect another interest rate hike will be needed this year to combat inflation, according to minutes released Wednesday from the central bank’s latest meeting.

Officials unanimously agreed that inflation remained high and had not made much progress toward their 2% target in recent months, according to the minutes.

The Fed raised its key interest rate by a quarter point at its September 15-16 meeting, to around 3.9%, its first increase in three years.

The increase defied President Trump’s repeated calls for the Fed to cut rates and prompted the president to criticize the Fed’s rate-setting committee, although he has consistently expressed support for Chairman Kevin Warsh, whom he appointed earlier this year.

The rate increase comes as Americans are already struggling with high costs for groceries, gasoline and housing, and as affordability has played a major role in the upcoming midterm elections, just seven weeks away.

Long-term interest rates for mortgages and other borrowing have also jumped in recent months for a variety of reasons, including rising government debt, heavy borrowing by technology companies to finance data center construction, rising oil and gas prices and signs that growth and inflation remain high.

The Fed’s rate hike likely played only a limited role in this increase.

Still, top policymakers have said since the meeting that the Fed may take some time to monitor the economy and the impact of last month’s rate hike before making another decision.

Wall Street investors now expect the Fed to keep the rate unchanged at its next meeting on October 28-29, depending on futures prices, and to raise it at its December meeting.

Philip Jefferson, vice chairman of the Fed’s board of governors, said last week that policymakers “will have to make their own judgments, which may take more time.”

Inflation, by the Fed’s preferred measure, was lower than many economists expected in August but remained elevated. Overall prices rose 3.4% from a year earlier, while core prices – which exclude the volatile food and energy categories – rose 3%. On a monthly basis, prices increased by 0.3% from July to August and base prices by only 0.2%.

According to the minutes, even with the rise in long-term rates, many officials said financial conditions — which include rising stock prices — “appear to be supportive of economic growth,” a sign that further rate hikes may be needed to calm the economy.

Several policymakers said they viewed the Fed’s rate as too low to rein in the economy, or as acting only as a slight restraint. This suggests they would support multiple rate hikes to curb inflation.

Rising oil and gas prices resulting from the war in Iran and the lingering effects of tariffs have driven up costs in recent months. But even excluding those trends, many Fed officials believe inflation is stuck between 2.5% and 3%, above its target. Soaring prices of semiconductors, computer hardware and electrical components due to the rapid boom in data center construction also played a significant role in accelerating inflation.

The Fed raised its key rate to around 3.9% at its September 15-16 meeting, its first increase in three years. Higher rates aim to slow borrowing and spending, cool the economy and lower inflation.

Warsh stressed after the announcement that the economy had shown signs of acceleration since the central bank decided to keep rates unchanged in late July.

“The fact is that inflation is too high and has been for too long,” Warsh said at a news conference after last month’s meeting. “We need to be sure that underlying inflation is moving toward our goal clearly and with sufficient speed. Today the FOMC has decided that this standard has not been met,” he added, referring to the Federal Open Market Committee, an arm of the Fed that sets monetary policy.

Trump criticized the committee for voting to raise rates, calling them “very political,” but he did not target Warsh.

“They are raising rates to make Trump do as much harm as possible,” the president said.