Fed minutes say 'most participants' favour another hike this year as AI build-out adds

The minutes from the FOMC’s September meeting were largely in line with our expectations, in that they signalled that the hiking cycle was not done, without committing to a rate increase at the next meeting later this month.

According to the minutes “most participants” judged that another rate increase would likely be appropriate before year end, with almost all participants flagging upside risks to inflation, which is partly seen as a byproduct of the rapid build-out in AI.

There was no sense in the minutes that the Fed is in a rush to hike again, however, and the communications did nothing to lay the groundwork for an October move, with a December hike still the clear base case.

Futures markets continue to fully discount a December rate increase, and with rate pricing for 2027 appearing excessive, we see little room for further gains in the dollar due to Fed policy.

Admittedly, another spike in Treasury yields could provide some fresh impetus for another dollar rally, though with Wednesday’s 10-year Treasury auction drawing strong demand this has removed some of the upside risk to both yields and the greenback.