The Fed was unanimous in raising its rates in September. The economic signals have since changed.
Minutes from the Federal Reserve’s September policy meeting reflect unanimous agreement among officials on the need to raise interest rates to combat persistent inflation.
“Participants generally emphasized that inflation remained high while the labor market appeared close to full employment, with some signs of strengthening, and that economic activity was growing at a solid pace. Furthermore, almost all participants believed that, although inflation risks were tilted to the upside, risks to the labor market had diminished and were now broadly balanced,” said the minutes of the September 16 meeting released Wednesday.
“Based on the outlook and the evolving balance of risks, all participants viewed a higher target range for the federal funds rate as appropriate.”
The Fed unanimously voted on September 16 to raise rates, the first increase in three years. And at the time, most members of the Federal Open Market Committee saw the need for at least one additional 25 basis point rate hike this year.
Markets were pricing in a rise and expecting more to come.
But the economic data published in recent weeks have considerably changed the situation. “Core” PCE, the Fed’s preferred measure of inflation, rose a relatively moderate 3% in August, beating expectations for a 3.3% rise and marking a decline from July’s 3.3%. At the same time, September employment figures fell well short of economists’ expectations, with a gain of just 29,000 jobs, while the unemployment rate rose slightly to 4.2% from 4.1%.
Learn more: How Employment, Inflation, and the Fed Are All Related
This less rosy jobs picture, combined with a more positive reading on inflation, has analysts — and some Fed officials — taking a cold look at the idea of another rate hike this month.
“This data will not change the Fed’s broader decision-making process, as inflation remains the paramount concern,” Natixis chief economist Chris Hodge told Yahoo Finance. “But with lower wages and a somewhat less rosy jobs picture, that certainly lessens the urgency for a hike in October (and perhaps December if the inflation data cooperates).”
Even before the September jobs report, Fed Vice Chairman Philip Jefferson and New York Fed President John Williams had already begun to moderate their expectations for a rate hike later this month. Both struck a more cautious tone than many of their colleagues, acknowledging that inflation has remained too high, but that the central bank should take time to assess whether it is on a downward trajectory.
Williams said that after raising rates in September, he saw “no urgent need” and that “we have time to gather more information.”
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