The mid-September Federal Reserve Open Market Committee (FOMC) meeting came with a unanimous vote to hike interest rates, after many economists predicted that outcome. Minutes from the meeting released today, however, reveal some of the thinking behind that decision.

The minutes offer a closer look at the reasoning behind the Fed’s rate hike. Based on the data provided to them, the FOMC determined that “inflation remained elevated.”

“Based on data from the consumer and producer price indexes, the staff estimated that price inflation edged up to 3.8% in August, led by a pickup in consumer energy prices after they had declined during the previous two months,” the meeting minutes state. “Both total and core inflation were higher than their levels from a year earlier, a development the staff attributed mostly to the effects of past tariff increases, higher energy and input costs stemming from geopolitical developments, and an increase in technology-related consumer goods prices associated with the AI buildout.”

Generally, the Fed expects inflation to decline for the final stretch of 2026, the minutes say. Gasoline prices were projected to move lower and core inflation was forecasted to edge down, as projections saw the effects of tariffs, geopolitical developments and AI buildout to wane over the next two years.

Yet—after witnessing the perpetual nature of elevated inflation—the minutes state that the “staff continued to view the uncertainty around its projects as substantial,” leading them to reconsider these factors as unknowns.

“The risks around the forecasts for employment and real GDP growth were seen as roughly balanced,” the minutes continue. “Risks to the inflation forecast were seen as skewed to the upside, given the possibility that inflation could prove to be more persistent than the staff anticipated.”

The long and the short 

During the meeting, 18 participants submitted their own projections and outlook on the economy. Generally, all participants noted that “inflation remained elevated and that they had not seen sufficient progress on lowering inflation in recent months.”

“They noted that ongoing geopolitical developments, which had pushed up prices for crude oil and refined fuel products, and surging AI-related investments were contributing to inflation pressures,” the minutes state. “Several participants observed that the rate of price increases in core services excluding housing remained elevated. Several observed that the rate of price increases in the core goods category also remained elevated, as effects of the AI buildout appeared to increase while the effects of tariff increases waned.”

Even after the Fed’s decision, inflation remains above their 2% goal and clocks in at about 3.4%, according to the latest data provided by the Bureau of Economic Analysis (BEA).

Breaking down the factors behind high inflation further, these participants noted that certain items in the PCE price index had made large contributions to the readings, specifically software and portfolio management fees.

“Those contributions would likely be reduced somewhat with the upcoming changes to the BEA’s methodology,” the minutes say.

The participants had also commented that “inflation would remain elevated in the near term and then decline toward 2% over the medium term under appropriate monetary policy,” and had cited their business contacts and surveys reporting increases in cost pressures—ranging from energy prices, transportation and input materials.

“Many participants assessed that the longer energy prices remained elevated, the greater the risk that cost increases in certain sectors could lead to broader price pressures,” the minutes continue. “Some commented that the AI buildout could cause aggregate demand to outpace aggregate supply over the medium term, putting upward pressure on inflation. Several noted that the possibility of further tariff increases was also an upside risk to inflation.”

During the press conference after the September meeting, Fed Chairman Kevin Warsh also emphasized the importance of the jobs report data provided by the Bureau of Labor Statistics (BLS) in their deliberations.

While the minutes reveal that “members noted that the unemployment rate was largely unchanged and that solid growth in economic activity had continued amid resilient domestic spending,” the latest jobs report came with several downward revisions to previous months.

Given the data provided to them—and testimonies provided by participants—the minutes say that the Fed concluded their meeting by stating that they “will deliver price stability.”

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