Minutes from the September meeting may provide extra context, as the real fed-funds rate is now surprisingly low

Federal Reserve Chairman Kevin Warsh speaks during a news conference after hiking interest rates on Sept. 16.

The Federal Reserve's meeting minutes could take on extra importance when they are released on Wednesday, given that they will reflect the thought process behind the September decision to raise the federal-funds rate by 25 basis points.

Those minutes could give the market important clues about the metrics the Fed uses when making decisions, and hint at what the central bank is considering when it comes to how many more rate hikes may be in store.

One thing that stood out from the press conference following the September rate-hike decision was that Fed Chairman Kevin Warsh said he would be hard-pressed to describe broad financial conditions as restrictive. Therefore, the widely shared view was to remove a "dose" of that accommodation.

A dose implies only a portion - which probably means more hikes may come down the road.

Measuring financial conditions

What isn't clear is which financial conditions the Fed uses to measure policy accommodation, and how much the recent rise in market rates has removed that accommodation.

The Chicago Fed's National Financial Conditions Index shows that financial conditions have been loosening steadily since they peaked in the fall of 2022, and while they have been lower historically, they remain at the easier end of the historical range.

The Chicago Fed's National Financial Conditions Index from 1970 to 2026.

Other measures of financial conditions, like the ICE BofA U.S. High-Yield Index option-adjusted spread, also show spreads are tight and have only been tighter a handful of times. So if the Fed is looking at these types of measures of financial conditions and indexes like the Chicago Fed's, then we can clearly see why conditions suggest more hikes could be needed - because, to this point, the dose handed to the market appears to be limited.

The ICE BofA U.S. High-Yield Index option-adjusted spread from 1997 to 2026.

A dose of reality

The minutes may also help show how quickly the Fed wants inflation back to its 2% target. The August personal-consumption expenditures (PCE) report was released after the September meeting, so the minutes will not reflect it. But it provides fresh context, because the PCE release incorporated the Bureau of Economic Analysis's annual update, including revisions reaching back to 2021.

In the end, the year-over-year headline and core PCE rates for August were unchanged from July, at 3.4% and 3.0%, respectively. Outside of a brief period in part of 2024 and 2025, the headline PCE has not been below 2.5% since early 2021, let alone 2%.

PCE vs. core PCE from 2015 to 2026.

Given this inflation reading, it is even harder to say that another few doses of accommodation removal aren't needed. Consider that a headline PCE of 3.4% and an effective fed-funds rate of roughly 3.9% mean that the real fed-funds rate, or the fed-funds rate less inflation, is just about 50 basis points, and roughly 90 bps when adjusted for core PCE.

The fed-funds rate, core PCE and headline PCE from 1988 to 2026.

In mid-2006, during Warsh's first tenure on the Fed's Board of Governors, headline PCE was running between 3.3% and 3.5% - about where it is today - and the real fed-funds rate was between 1.5% and 2.0%. By October 2006, as inflation fell, the real rate had climbed to 3.6%. So, one could imagine what he must think today about a real fed-funds rate of roughly 50 bps - more than 300 bps lower.

Fed-funds rate versus headline PCE from 1990 to 2026.

It's hard to say what these minutes will tell us; they are likely to be short and to the point, and contain little forward guidance. But perhaps they could just give a really good sense of what is being discussed around that table, and what a good family fight at the Fed looks like these days.

Michael Kramer is the founder of Mott Capital Management and a long-only investor focused on macroeconomic themes. He analyzes long-term macro trends and short-term market risk using technical analysis, fundamentals and options-market positioning. See here for further disclosures.

-Michael Kramer