《政政經經》The Federal Reserve's September meeting minutes were released at 2 a.m. Hong Kong time today (8th). This document may attract more attention than usual, as it will further reveal why the Fed raised interest rates by 25 basis points in September, and how officials actually assess how tight current monetary policy truly is.
According to analysis by Jinshi Data, the minutes might indicate how many more rate hikes the Fed is still considering. At the press conference following the September decision, Federal Reserve Chair Wach said he found it difficult to describe overall financial conditions as "restrictive."
This statement leaves an important question: if current policy has only removed "one dose" of accommodation, does that mean further rate hikes are still needed?
What indicators is the Federal Reserve actually watching?
It remains unclear which specific financial conditions indicators the Fed uses to judge whether policy is tight enough, nor can we determine to what extent recent market rate increases have already offset prior easing.
The Chicago Fed National Financial Conditions Index shows that U.S. financial conditions have continued to ease since peaking in the fall of 2022. Although this indicator is not at its most accommodative level historically, it still sits on the looser side of its historical range.
Other indicators also send similar signals. The option-adjusted spread of the ICE BofA U.S. High Yield Bond Index is currently still narrow, lower than most periods in history.
Michael Kramer, founder of Mott Capital Management, wrote that if the Fed is indeed monitoring these indicators, current financial conditions may still not be tight enough to be defined as clearly restrictive. This also explains why the September rate hike might just be the beginning, rather than a one-off policy adjustment.
Inflation is also a key factor in judging whether policy is tight enough. The U.S. August Personal Consumption Expenditures (PCE) data was released after the September meeting and therefore will not appear in the information underlying the meeting minutes. However, this report includes annual revisions by the U.S. Bureau of Economic Analysis and retrospective adjustments to data since 2021, providing new context for assessing the current inflation environment.
Revised data shows that August's overall PCE rose 3.4% year-on-year, while core PCE rose 3.0% year-on-year, both unchanged from July. Except for brief periods in 2024 and 2025, overall PCE has not fallen below 2.5% since early 2021, and has never reached the Fed's 2% target.
This makes "whether further policy tightening is still needed" even more noteworthy.
Currently, the effective federal funds rate is about 3.9%. If calculated using overall PCE, the real federal funds rate is only about 50 basis points; if using core PCE, it is only about 90 basis points.
This level shows a clear gap compared to when Wach first served as a Fed governor in 2006.
In mid-2006, the U.S. overall PCE inflation rate was about 3.3% to 3.5%, roughly comparable to current levels. But at that time, the real federal funds rate was about 1.5% to 2%. By October 2006, as inflation declined, the real rate further rose to 3.6%.
*Real rates below 2006 levels*
In other words, at similar inflation levels, the current real rate is still over 300 basis points lower than during Wach's mid-term in 2006.
What might the meeting minutes reveal?
Kramer believes that what's truly worth watching in the FOMC minutes may not be the already clear decision of why a 25-basis-point hike occurred in September, but rather how officials discussed financial conditions, real interest rates, and the pace of inflation decline.
The minutes might also reveal how quickly the Fed wants inflation to return to its 2% target, and whether officials believe current policy is already restrictive enough.
Of course, the meeting minutes may not provide clear answers. They might be limited in length, focused on discussions at the time of the September meeting, and may lack clear forward guidance.
*One rate hike vs. the start of hikes*
But Kramer believes that if the minutes reflect discussions among Fed officials regarding the degree of policy accommodation, it could help markets judge whether this "one dose" of rate hike in September is a one-off adjustment or the beginning of a new tightening cycle.《Senior Investor, Shek King-chuen》
(Investing involves risk; every investor's risk tolerance varies— independent thinking is essential. The author may trade based on market conditions.)
*Articles published in 《Economic Intelligence》, whether signed or unsigned, represent the authors' personal opinions and do not reflect the stance of 《Economic Intelligence》. The role of 《Economic Intelligence》 is to provide a free platform for expression.
According to analysis by Jinshi Data, the minutes might indicate how many more rate hikes the Fed is still considering. At the press conference following the September decision, Federal Reserve Chair Wach said he found it difficult to describe overall financial conditions as "restrictive."
This statement leaves an important question: if current policy has only removed "one dose" of accommodation, does that mean further rate hikes are still needed?
What indicators is the Federal Reserve actually watching?
It remains unclear which specific financial conditions indicators the Fed uses to judge whether policy is tight enough, nor can we determine to what extent recent market rate increases have already offset prior easing.
The Chicago Fed National Financial Conditions Index shows that U.S. financial conditions have continued to ease since peaking in the fall of 2022. Although this indicator is not at its most accommodative level historically, it still sits on the looser side of its historical range.
Other indicators also send similar signals. The option-adjusted spread of the ICE BofA U.S. High Yield Bond Index is currently still narrow, lower than most periods in history.
Michael Kramer, founder of Mott Capital Management, wrote that if the Fed is indeed monitoring these indicators, current financial conditions may still not be tight enough to be defined as clearly restrictive. This also explains why the September rate hike might just be the beginning, rather than a one-off policy adjustment.
Inflation is also a key factor in judging whether policy is tight enough. The U.S. August Personal Consumption Expenditures (PCE) data was released after the September meeting and therefore will not appear in the information underlying the meeting minutes. However, this report includes annual revisions by the U.S. Bureau of Economic Analysis and retrospective adjustments to data since 2021, providing new context for assessing the current inflation environment.
Revised data shows that August's overall PCE rose 3.4% year-on-year, while core PCE rose 3.0% year-on-year, both unchanged from July. Except for brief periods in 2024 and 2025, overall PCE has not fallen below 2.5% since early 2021, and has never reached the Fed's 2% target.
This makes "whether further policy tightening is still needed" even more noteworthy.
Currently, the effective federal funds rate is about 3.9%. If calculated using overall PCE, the real federal funds rate is only about 50 basis points; if using core PCE, it is only about 90 basis points.
This level shows a clear gap compared to when Wach first served as a Fed governor in 2006.
In mid-2006, the U.S. overall PCE inflation rate was about 3.3% to 3.5%, roughly comparable to current levels. But at that time, the real federal funds rate was about 1.5% to 2%. By October 2006, as inflation declined, the real rate further rose to 3.6%.
*Real rates below 2006 levels*
In other words, at similar inflation levels, the current real rate is still over 300 basis points lower than during Wach's mid-term in 2006.
What might the meeting minutes reveal?
Kramer believes that what's truly worth watching in the FOMC minutes may not be the already clear decision of why a 25-basis-point hike occurred in September, but rather how officials discussed financial conditions, real interest rates, and the pace of inflation decline.
The minutes might also reveal how quickly the Fed wants inflation to return to its 2% target, and whether officials believe current policy is already restrictive enough.
Of course, the meeting minutes may not provide clear answers. They might be limited in length, focused on discussions at the time of the September meeting, and may lack clear forward guidance.
*One rate hike vs. the start of hikes*
But Kramer believes that if the minutes reflect discussions among Fed officials regarding the degree of policy accommodation, it could help markets judge whether this "one dose" of rate hike in September is a one-off adjustment or the beginning of a new tightening cycle.《Senior Investor, Shek King-chuen》
(Investing involves risk; every investor's risk tolerance varies— independent thinking is essential. The author may trade based on market conditions.)
*Articles published in 《Economic Intelligence》, whether signed or unsigned, represent the authors' personal opinions and do not reflect the stance of 《Economic Intelligence》. The role of 《Economic Intelligence》 is to provide a free platform for expression.
