UOB’s Alvin Liew analyzes the September 2026 FOMC minutes, highlighting unanimous support for a 25bp hike to 3.75–4.00% as inflation stays elevated and growth remains solid. He notes policymakers generally see another hike as likely by year-end and expects two further increases in December 2026 and 1Q 2027, with the US Fed Funds Target Rate upper bound peaking at 4.50% and then held through 2027.
Fed path points to higher rates
"The Sep 2026 FOMC minutes revealed a unanimous shift toward policy tightening, with all 19 participants supporting a 25bp rate hike to 3.75-4.00%, compared with the divided Jul meeting. Policymakers agreed inflation remained elevated, the labour market was near maximum employment and economic activity continued to expand at a solid pace. While participants differed on the rationale for tightening, ranging from inflation-risk insurance to concerns about stronger underlying demand, most judged that another rate increase would likely be appropriate by year-end."
"The Sep FOMC minutes showed Fed policymakers broadly viewed another rate hike to be appropriate by year-end, but it certainly did not commit themselves to any move in the upcoming Oct FOMC. We expect two additional hikes, in Dec 2026 and 1Q 2027, thereafter on hold for rest of 2027 as inflation fades in a more durable fashion in the later part of 2027 as the most likely course. We have ruled out a back-to-back rate hike in the Oct FOMC, which falls less than a week from the midterm elections (3 Nov)."
"That said, we continue to keep in mind the risks of further policy tightening if the inflation trajectory becomes more persistent by the combination of higher energy prices, trade tariffs and AI-related factors. We have ruled out a back-to-back rate hike in the Oct FOMC, which falls less than a week from the midterm elections (3 Nov)."
"According to Bloomberg’s WIRP, the probability of a Oct rate hike fell further to 19.4% on 8 Oct (from 21.6% on 5 Oct, and materially lower from 70.3% on 28 Sep)."
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