Fed Minutes: The Committee Raised on Two Readings of August. Both Have Changed Since.
The Fed minutes for the September 15-16 meeting came out Wednesday, and they describe a committee raising rates against two readings of August: an estimate of inflation, and a picture of the job market. Both have changed since the vote.
The decision was a quarter point increase to a target range of 3.75 to 4.00 percent on a 12-0 vote, and the Federal Reserve’s minutes add what a tally cannot: “all participants supported raising the target range”. Participants include the non-voting Reserve Bank presidents, so support ran wider than the twelve votes.
The forward-looking sentence: “most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end”. Two meetings are left, October 27-28 and December 8-9.
A reassessment of the labour market cleared the way
The increase rested on a judgment about employment: “almost all participants assessed that, while inflation risks were tilted to the upside, risks to the labor market had diminished and were now broadly balanced”.
A majority of participants “assessed that the labor market had strengthened a bit recently”, pointing to “employment gains modestly outpacing labor force growth”, a claim about the level of hiring.
The hiring figures underneath that have since been revised down
The staff’s description of August was specific: “The pace of nonfarm payroll employment gains picked up notably in August, reflecting increases across a range of industries.”
On October 2 the Bureau of Labor Statistics put July at a loss of 10,000 from a gain of 21,000 and August at 133,000 from 162,000, 60,000 lower across the two months than previously reported. On our arithmetic they now average 61,500 jobs a month against 91,500 on the figures in front of the committee, roughly a third less hiring.
The pickup itself survives the revision, because July was cut by more than August was. What moved is the level of hiring underneath it, which is the basis the majority gave. September’s own 29,000 gain sits inside the agency’s plus or minus 122,000 confidence interval, so the markdown of two settled months is the firmer fact.
The August inflation figure behind the discussion is not the one on the record now
The committee met before the Bureau of Economic Analysis had published August PCE, so the staff nowcast it from consumer and producer price data: total PCE inflation “edged up to 3.8 percent in August” and core “was estimated to have remained at 3.4 percent in August”. On BEA’s incoming methodology the staff put total at 3.6 percent and core at 3.2 percent.
The actual figures came on September 30. BEA restated July and printed August core PCE at 3.0 percent, with headline at 3.4 percent.
| August 2026, 12-month change | Staff estimate at the meeting | Staff estimate on BEA’s new methodology | BEA actual, September 30 |
|---|---|---|---|
| Total PCE prices | 3.8% | 3.6% | 3.4% |
| Core PCE prices | 3.4% | 3.2% | 3.0% |
Note: the first column predates the annual update of the national accounts BEA published on September 30, with revisions back to January 2021, and is not on the same basis as the third. The second is the staff’s estimate of what the new basis would produce.
Like for like, the middle column against the last, the staff’s new-methodology estimate ran 0.2 percentage point above the print on both lines. The 0.4 point gap from the meeting-time estimate spans two vintages of the series, part forecast error and part re-basing. Running 0.4 above a later print is what a nowcast does. The narrower point survives both caveats: the staff put 3.2 percent core in front of the committee on the basis BEA was about to adopt, and the figure on the record now is 3.0.
A few participants observed that the three-month core PCE measure had declined materially since the start of the year, but cautioned that it “is more volatile than the 12-month change measure and has shown a strong tendency to understate inflation in the second half of the year compared with the first half”.
So neither of the two August readings is where it was when the vote was taken. The third leg of the stated basis is untouched: participants “generally assessed that economic activity was expanding at a solid pace”, and nothing since says otherwise.
Many participants emphasized that “a higher path for the target range would be prudent on risk-management grounds, providing insurance against inflation remaining persistently above target due to stronger-than-expected demand or further adverse supply shocks”. A number of participants instead “viewed a higher path for the target range as necessary based on their modal outlooks rather than on risk-management grounds”. Insurance can be stood down when the risk it was bought against recedes, while a case resting on the central forecast needs the forecast to move. The revised readings speak to demand and prices, not to the adverse supply shocks named alongside them, which the minutes record as a live concern of many participants.
Participants “approached each meeting with an open mind”, the minutes record, and future decisions “would depend on incoming information”.
Several participants viewed the rate as not restrictive, or only mildly so
“Several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive.” That was a September 16 view. Separately, a couple of participants “remarked on having increased their estimate of the neutral federal funds rate”.
The committee’s September projections table puts numbers beside it. Those figures are year-end midpoints of the projected appropriate target range, not rates. The current midpoint of 3.875 percent plus a quarter point rounds to the table’s 4.1 percent median for the end of 2026.
Every horizon was revised up between June and September: end-2026 to 4.1 percent from 3.8, end-2027 to 4.1 from 3.6, end-2028 to 3.9 from 3.4, and end-2029 to 3.6 from 3.1. On our arithmetic the median ends 2027 where it ends 2026, at 4.1 percent, and in 2029 it is still 40 basis points above the committee’s own 3.2 percent longer-run median.
The AI buildout in goods prices, and in what is driving equities
Several participants observed that core goods price increases remained elevated, “as effects of the AI buildout appeared to increase while the effects of tariff increases waned”. And the manager’s read on equities: the rise in equity prices this year “was entirely attributable to strong actual and expected corporate earnings, while price-to-earnings multiples had declined”.
For Canadian investors, the gap is not widening the way it looks
Energy is the thread that reaches Canada. Many participants assessed “that the longer energy prices remained elevated, the greater the risk that cost increases in certain sectors could lead to broader price pressures”, and the staff attributed part of August’s pickup in total PCE inflation to consumer energy prices. The Fed is raising partly on the price of a commodity Canada exports heavily.
Tightening is not only an American posture: “most foreign central banks remained focused on inflation risks”, the minutes record, and the European Central Bank “raised its policy rate, citing continued inflationary pressures from the Middle East conflict”.
The Bank of Canada’s overnight rate target is 2.25 percent, latest observation October 6. Against a Fed midpoint of 3.875 percent, our arithmetic puts the gap at 162.5 basis points, and the obvious reading is a widening gap. Canada’s own pricing did not support that: on Montreal Exchange one-month CORRA futures settlements of October 2, Canada was priced for a quarter-point increase by December 9, with October 28 “a lean, not a decision”.
If the Fed raises again and the Bank of Canada holds, the gap widens to 187.5 basis points. If both raise a quarter point, as Canada’s futures were priced for on October 2, it is unchanged.
The order matters as much as the pair. On the reading that the Fed takes its year-end increase in October and Canada follows its December 9 pricing, the Fed moves first and the Bank of Canada follows 42 days later: six weeks in which the gap sits near 187.5 basis points before returning to 162.5. That is our reading of a stated Fed expectation and of five-day-old Canadian pricing, not a forecast of either decision.
None of that is abstract for anyone holding US exposure in Canadian dollars, because hedging is priced off this spread. Our guide to Canadian Depositary Receipts calls the hedge cost “roughly whatever the Bank of Canada and the Federal Reserve are doing to each other”, and its own measurement across 64 US CDRs from September 2024 to September 2026 puts that at roughly 2.2 to 2.7 percent a year, 2.24 percent for the least volatile quartile and 2.47 for the most.
The Bank of Canada’s upcoming events page gives October 28 at 09:45 ET with a Monetary Policy Report, and December 9, each the closing day of a Fed meeting.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Figures are drawn from the Federal Reserve’s September 15-16, 2026 minutes and projections, the Bureau of Economic Analysis, the Bureau of Labor Statistics and the Bank of Canada, as cited in the article.
