The Fed’s policy tightening in September largely served as insurance against a possible acceleration in inflation, says Freedom Broker macroeconomist Yuri Ichkitidze. In a review dated October 8, he notes that the data released after the meeting showed a smaller increase in prices than the regulator had expected. This weakens the case for further rate increases.
Freedom’s base case assumes one more hike in December 2026. After that, the rate may remain unchanged until new data emerge that would require a policy reassessment.
The Fed Raised the Rate to Limit Inflation Risks
The minutes of the Federal Open Market Committee meeting held on September 15–16 showed differences in participants’ motivations.
Many saw a higher rate as a prudent precautionary measure in case inflation proved persistent. It could be supported by stronger demand or new disruptions in the supply of goods and commodities. Other participants believed that further tightening was necessary based on their baseline economic forecast.
In Ichkitidze’s assessment, this confirms that the September decision was linked not only to current indicators but also to an attempt to curb potential risks in advance.
August Inflation Came in Below the Regulator’s Expectations
At the time of the meeting, Fed staff expected that, taking into account the methodology revision, the year-over-year increase in the PCE price index for August would be 3.6%. The core measure, excluding food and energy, was projected at 3.2%.
The actual data released on September 30 were lower: the headline figure was 3.4%, and core was 3%. Both readings were 0.2 percentage point below the Fed’s expectations.
PCE reflects changes in prices for goods and services purchased by consumers. The regulator uses this indicator to assess inflation. Weaker price growth reduces the need to raise the rate at the pace that may have been discussed at the September meeting, Freedom believes.
The December Hike Remains a Forecast, Not a Decision
According to the review, most participants at the September meeting considered it appropriate to raise the rate once more before year-end. Freedom interprets this as an argument in favor of a December hike rather than continuing tightening as early as October.
At the same time, inflation coming in below expectations weakens the rationale even for that scenario. The analyst emphasizes that further decisions will depend on new data.
The minutes note that the economy continues to grow steadily and that risks to the labor market have become more balanced. Inflation risks, however, remain. Medium- and long-term inflation expectations remain at levels consistent with the Fed’s 2% target, although short-term expectations among some participants raise concerns.
Weak Employment Growth Also Supports a Pause
Earlier, Freedom Broker reported a weakening of expectations for an October rate hike after the labor market report. In September, the number of jobs increased by only 29 thousand, unemployment rose to 4.2%, and the average hourly wage added 0.1% over the month.
In another piece, Ichkitidze highlighted inflation and oil prices among the key factors for the U.S. Treasury market. New data on these indicators will help assess how well-grounded further rate increases are.
This is not an individual investment recommendation.