September's rate hike was viewed by many officials as needed just in case inflation remains sticky

Federal Reserve Chairman Kevin Warsh speaks during a news conference in September.

Federal Reserve officials showed no desire to engineer a series of interest-rate hikes at their policy meeting in September, according to minutes of the gathering that were released Wednesday.

All 19 top Fed officials were united in their decision to raise the central bank's benchmark interest rate to a range of 3.75% to 4% - but they differed on their reasons for the move. Many portrayed the move as insurance against sticky inflation; a smaller number said it was necessary to fight inflation.

Officials believed inflation was cooling and that the September rate hike would speed up the process, per the minutes. It was the Fed's first hike since July 2023.

"Participants judged that this would support a timlier return of inflation to the Fed's 2% goal," the minutes said.

In their speeches since the meeting, Fed policymakers have portrayed the hike as a cautious one. Most assessed that another quarter-point hike would likely be appropriate before the end of the year, but stressed the decision was not final.

According to the Fed's economic forecast, the majority of Fed officials think another hike would be the last one needed to cool inflation, and that the Fed could then hold rates steady until slowly lowering rates starting in 2028.

Markets are pricing in more tightening than the Fed has forecast. Traders in derivative markets now see three more quarter-point hikes by next June, which would bring interest rates up to a range of 4.5% to 4.75%.

Markets now think the Fed will skip a move at its October meeting and then hike in December. Expectations for an October move pulled back after New York Fed President John Williams publicly indicated there was no need for urgency. The September jobs report also came in softer than expected.

The U.S. government will release key inflation reports next week, which could alter expectations.

Fed officials said they had not seen sufficient progress on lowering inflation in recent months, per the minutes. They said that the war with Iran and surging AI-related investments were boosting inflation pressures. They noted that the labor market had strengthened a bit and that the U.S. economy was expanding at a solid pace.

The Fed staff's inflation forecast was somewhat higher for 2026 through 2028 than the one prepared in July. The staff now sees inflation scaling down over the next two years, and finally reaching the Fed's 2% target in 2029.

-Greg Robb