The Federal Reserve's September meeting minutes show policymakers were split
over the rationale for last month's 25bp increase. Some participants said a hike
was needed to limit the pass-through from energy and other supply-price shocks;
more hawkish officials said action was required to guard against emerging
demand-driven inflation. Officials voted unanimously for the 25bp rise but
disagreed on whether it was precautionary or signaled a clear shift to tighter
policy. That division, and differing economic assessments, suggests October
discussions could be contentious. The minutes say many participants viewed
raising the path of the federal funds rate target range as prudent from a
risk-management perspective to guard against inflation running above target if
demand surprised on the upside or adverse supply shocks repeated. Others said
the increase was important to prevent recent energy and other shocks from
broadening; two participants supported the hike because it aligned with their
view that the neutral rate had risen. Several participants judged the current
policy rate to be nonrestrictive or only modestly restrictive, and most saw
another hike as potentially appropriate by year-end.
