Washington:Most Federal Reserve officials believe another interest rate hike will likely be necessary before the end of 2026. This was revealed in the minutes of the central bank's September meeting released on Wednesday.

According to Anadolu Agency, all participants at the September 15-16 meeting supported a quarter-point increase, which set the federal funds rate target range between 3.75% and 4%. The officials highlighted that inflation remained high, economic activity was steadily expanding, and the labor market was close to full employment with some strengthening signs.

Almost all participants perceived inflation risks as skewed to the upside, while risks to the labor market had lessened and were broadly balanced. Many officials considered a higher interest rate path as a precaution against inflation staying persistently above the Fed's 2% target, due to factors such as stronger demand or further supply shocks. Some officials warned of the potential entrenchment of inflation expectations affecting wage and price-setting decisions.

Geopolitical developments, which have driven up crude oil and refined fuel prices, and the surge in artificial intelligence investment, were noted by officials as contributing factors to inflation pressures. They expressed concern that prolonged elevated energy prices could spread into broader price pressures. The AI investment boom was seen as a potential factor in causing overall demand to surpass supply in the medium term, leading to more inflation.

Despite these challenges, officials generally expected AI investments to boost productivity and potential output in the future, but acknowledged significant uncertainty about the extent and timing of these benefits. Financial conditions were seen as supportive of economic growth, despite a recent increase in longer-term Treasury yields. Substantial stock market gains and narrow corporate bond spreads were cited as positive indicators, though elevated mortgage rates were noted to be affecting housing activity.

Participants emphasized their commitment to approaching each meeting without preconceived notions, basing future decisions on incoming information, the economic outlook, and the balance of risks.