Most Federal Reserve officials concluded at their September meeting that they would probably have to raise interest rates again before the end of this year, according to the minutes of the Sept. 15-16 session, released Oct. 7. Only two policy meetings are left on the 2026 calendar, and the committee’s own staff told officials that credit conditions had turned “somewhat restrictive for residential mortgage borrowers and small businesses.”
The operative sentence is unusually direct for a Fed document: “most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.” The minutes add that “all participants viewed a higher target range for the federal funds rate as appropriate” at the September meeting itself.
What the committee did in September
At that meeting the Federal Open Market Committee voted 12-0, with no dissents, to raise the federal funds target range by a quarter of a percentage point, to 3-3/4 to 4 percent. The Board of Governors raised the interest rate on reserve balances to 3.90 percent and the primary credit rate to 4.0 percent, both effective Sept. 17. It was the Fed’s first increase since 2023, and it reversed part of the easing cycle of the previous two years.
The unanimity was itself a change. In July, the committee had held rates steady on a 9-3 vote, and the minutes of that meeting showed a committee divided over whether to tighten. By September the three dissenters had their majority.
Inflation is the reason
Staff put the 12-month change in the personal consumption expenditures price index at 3.8 percent in August, with the core measure at 3.4 percent β both well above the Fed’s 2 percent objective. Participants said inflation “remained elevated,” and several singled out continued strong price increases in core goods and in core services excluding housing.
Officials generally judged the risks to inflation to be skewed to the upside. Some went further, warning that after more than five years of inflation running above 2 percent, the persistence itself could begin to shape expectations and the way wages and prices are set. Longer-term inflation expectations, the minutes say, were still judged consistent with the 2 percent goal.
On the other side of the mandate, participants described labor market conditions as stable and generally viewed the economy as close to maximum employment, with a majority seeing the job market strengthening somewhat in recent months. Labor market risks were called broadly balanced. With employment near target and inflation nearly two points above it, the case several participants made was straightforward: “Several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive.”
Housing shows up as a problem, not a priority
For real estate, the most consequential passages are in the staff’s review of financial conditions. Nominal Treasury yields “increased notably” over the intermeeting period, with yields up roughly 35 basis points across the two- to 10-year part of the curve. “Residential mortgage rates increased a bit more than 10-year Treasury yields,” the staff reported, and “borrowing for home purchases remained depressed.”
That reading reached the table. “A few participants commented that housing was a sector in which financial conditions did not appear supportive of activity, with mortgage rates remaining at elevated levels,” the minutes say. It is a small number β a few, not most β and the minutes record no discussion of house prices, residential investment, single-family construction, commercial real estate values or commercial mortgage lending. Nor is there any suggestion that housing weakness argued for a different policy path.
Agents, lenders and developers reading the document will find their market acknowledged and then set aside. On our reading, that is the central message for the industry: the committee sees restrictive housing credit as evidence that policy is working, not as a cost to be offset.
Rates have kept climbing since the meeting
Bond markets have not waited for the next decision. The 10-year Treasury par yield closed at 5.01 percent on Sept. 16, the day of the decision, and at 5.28 percent on Oct. 7, according to the Treasury Department’s daily par yield curve β a move of 27 basis points in three weeks.
Mortgage rates have followed. Freddie Mac’s Primary Mortgage Market Survey put the 30-year fixed-rate average at 7.28 percent for the week ending Oct. 1, up from 7.03 percent a week earlier and 6.34 percent a year before. The 15-year average was 6.60 percent. Mortgage application volumes have weakened as rates climbed, and refinance activity is running at less than half last year’s pace.
Two meetings left
The committee meets Oct. 27-28 and again Dec. 8-9, the second of those accompanied by a fresh Summary of Economic Projections. A single quarter-point increase at either meeting would satisfy the expectation recorded in the minutes.
Nothing in the document commits the committee to that. “Participants emphasized, however, that they approached each meeting with an open mind,” the minutes say, and future decisions would depend on incoming data. The inflation prints that arrive before Oct. 28 will therefore matter more than the minutes themselves to anyone pricing a loan or underwriting a deal this fall. Our continuing coverage of the rate environment is in Mortgage.
