- September Fed minutes show several officials called the policy rate “not restrictive or only mildly restrictive,” and a couple raised their estimates of the neutral rate.
- Officials flagged energy disruptions and AI-related demand as risks that could spread into persistent inflation, which supports holding rates higher.
- As of October 8, CME FedWatch showed an 81.9% chance of at least one more hike by December, with September CPI due next week and PCE on October 29.
The Fed’s September rate hike may not be the last, according to GlobeSt’s read of the central bank’s minutes. Several officials said policy was doing little to restrain the economy.
The concern is not necessarily that another increase is imminent. But the minutes show policymakers questioning how much restraint current rates deliver, and whether they need to do more.
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Officials Question How Tight Policy Is
Several participants described the policy rate as “not restrictive or only mildly restrictive,” per the minutes. That raises the question of whether September’s increase went far enough to cool the economy.
A couple of participants also raised their estimates of the neutral federal funds rate, the level that neither stimulates nor restrains activity. The minutes said that shifted their views of the appropriate target range.
Taken together, GlobeSt says the comments point to more than concern about the latest inflation readings. Some officials were reconsidering whether the Fed’s rate setting was sufficiently restrictive in the first place.
Energy and AI Raise Inflation Risk
Two sources of price pressure drew particular attention: energy market disruptions and demand tied to the AI boom. A couple of participants said a higher policy rate would help keep those sector-specific increases from broadening into persistent inflation.
The distinction matters. Those officials worried about prices rising in particular sectors and about those increases spreading, which would make inflation harder to contain.
The minutes also described a resilient economy, persistent inflation and geopolitical tension that pushed up energy prices. GlobeSt notes that higher energy costs tied to the Iran war and AI-driven price pressure are hard to predict.
A Hike Is Possible but Not Urgent
None of this means the Fed will raise rates again at its October meeting. New York Fed President John Williams saw “no need for urgency,” and Vice Chair Philip Jefferson suggested policymakers may need more time.
Still, September’s projections pointed to at least one more quarter-point increase. As of October 8, CME Group’s FedWatch tool put the probability of at least one more hike by December at 81.9%, with a 17.7% chance of a half-point increase by year-end.
Why It Matters
For CRE investors, the question is whether energy and AI-driven pressures convince the Fed that September’s move was insufficient. Another hike would add to financing costs just as the 10-year Treasury yield already has lenders on alert.
Higher borrowing costs have already pushed buyers to retrade deals and ask for price cuts. A further increase would likely extend that pressure.
What’s Next
September CPI figures are due next week, followed by the PCE price index on October 29. Those reports look backward, so they will not fully settle the Fed’s concern about how energy and AI demand could affect prices in coming months.
