Fed Policymakers Think Another Interest Rate Hike Is Likely This Year, Minutes Show

Federal Reserve policymakers believe another increase to the benchmark interest rate will likely be necessary by the end of the year, according to newly released meeting minutes.

At the September meeting of the rate-setting Federal Open Market Committee, Fed Chair Kevin Warsh joined the unanimous 12-0 vote in favor of raising the overnight interest rate to a range of 3.75% to 4.00%, marking the first rate increase in more than three years.

The move came in defiance of President Donald Trump's longstanding calls for lower rates, which would stimulate the economy and reduce government borrowing costs. However, members of the FOMC judged inflation to be a resurgent threat and responded with the rate hike.

Mortgage rates have already surged to a three-year high of more than 7% in recent weeks amid a global bond sell-off, and minutes from the September meeting released on Wednesday suggest that the Fed's work isn't done.

"With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes state.

Financial markets currently assess a 70% probability that the Fed will raise its benchmark rate by the end of the year, according to CME FedWatch. However, traders view a hike at the December meeting as more likely than a rate move at the meeting scheduled for later this month.

The Fed uses higher interest rates to fight inflation and lower rates to stimulate the job market, in line with the central bank's dual mandate to maintain price stability and maximum employment. The Fed doesn't directly set mortgage rates, which instead move in response to investor expectations about future inflation and financial conditions.

It appears increasingly likely that the Fed will hold interest rates steady at the next FOMC meeting on Oct. 27–28, after recent labor market data came in cooler than expected.

As well, the October meeting falls just one week before the midterm elections, and the central bank has historically shied away from making dramatic moves close to elections unless it is responding to a clear crisis.

"We are much more likely to see a rate hike in December than in October," says Realtor.com® senior economist Jake Krimmel. "Prediction markets have become more certain of an October hold in recent weeks, and the release of today's minutes seemed to have little impact on the odds of an October pause."

Meanwhile, mortgage rates, which closely follow the yield on the 10-year Treasury, have surged in recent weeks amid a global bond sell-off that appears to be only partly related to Fed policy.

The 10-year yield touched its highest level in 24 years on Wednesday morning, as investors expressed fears about widening government deficits and prolonged inflation. A successful Treasury auction on Wednesday afternoon steadied the market and sent yields slightly lower.

For homebuyers, the bond market turmoil has been most apparent in mortgage rates, which surged to a three-year high of 7.28% last week, according to Freddie Mac.

New weekly mortgage rate data due out on Thursday is expected to show rates continued to climb this week, driven by higher Treasury yields as well as a widening yield spread, or the gap between the 10-year yield and mortgage rates.

However, Krimmel says he doesn't expect the Fed meeting minutes released on Wednesday to have a significant impact on mortgage rates.

"As for mortgage rates, I think a second hike for 2026 has probably already mostly been priced in. That is, I would not expect the release of today's minutes to cause any notable or immediate movement in the 10-year Treasury yield or mortgage rates, by extension."