Most Federal Reserve policymakers expect to raise US interest rates again before the end of the year, according to minutes of the September meeting published yesterday evening. The Fed, America's central bank, lifted its benchmark rate by a quarter point to 3.75% to 4.00% on 16 September, its first increase since 2023, and the vote was unanimous at 12 to 0. The minutes, the detailed record of each meeting released three weeks after the decision, show officials were debating how much further to go, not whether to stop.
Inflation was the reason. Officials said they had seen too little progress in recent months, with prices still rising briskly in services and in goods, the latter linked to the rush to build artificial intelligence infrastructure as the effect of tariffs fades. Higher crude oil and fuel prices, pushed up by events in the Middle East, added to the concern that rising costs in a few sectors could spread more widely. Several officials described the current rate as "not restrictive or only mildly restrictive", meaning it is doing little to slow the economy. Some worried that after more than five years of inflation above the 2% target, households and firms could start building higher prices into their expectations and pay settlements.
The question that hung over the summer, when US inflation held at 3.7% in July, has been settled: the Fed has stopped asking whether to tighten and started asking how far. In September officials judged the jobs market close to full strength. Since then it has softened. The September jobs report on Friday showed employers added just 29,000 posts, against forecasts of around 90,000, with July and August revised down by a combined 60,000 and unemployment at 4.2%. That has largely removed the chance of a move at the next meeting on 27 and 28 October, which markets now put at around one in five, but a rise in December is almost fully priced.
What it means for GBP/USD
The pound was trading around 1.3207 against the dollar this morning, close to its 2026 low of 1.3140 and well below the August high near 1.3675. The dollar is drawing support from the minutes, from US government bond yields near their highest in years, and from demand for safe assets as tension in the Middle East keeps oil prices high. Sterling has support of its own, with markets pricing around an 85% chance that the Bank of England raises Bank Rate from 3.75% on 5 November. But with both central banks now raising rates, the interest rate advantage that lifted the pound over the summer has narrowed, and the Budget on 28 October adds a risk closer to home. For a business paying dollar suppliers or staff in the months ahead, a forward contract fixes today's rate for a settlement date up to two years out and takes both October dates out of the budget.
