The wind the Fed is blowing out this week is hawkish enough.
Earlier this week, it first raised the target interest rate range by 25 basis points—up to between 3.75% and 4%—the first rate hike in three years. Since this hike took effect, many Fed officials have publicly called for further tightening; Friday was when they all burst forth at once. Next, just on Friday, three regional Fed presidents came out one after another with messages that were highly consistent: inflation hasn’t been brought down yet, and policy still needs to stay tightening.
Hammack in Cleveland was the most blunt. She worries that high prices will drag on long enough for ordinary people to slowly come to treat inflation as the norm—which is exactly the situation the Fed cannot accept. She said this during an event hosted by the Fed in her district. Her exact words were: "The biggest risk now is that an inflation mindset is starting to take shape." She stressed that the Fed must play a role to ensure policy remains in a restrictive stance and to bring inflation back to the 2% target. Hammack also noted that the economy itself is still growing well and the labor market remains stable, but she is not comfortable with the price pressures coming from the demand side—especially since capital expenditures over the coming period will continue to pose pressure on inflation. She also issued a warning: if progress in bringing inflation down stalls, inflation expectations could shift. As for how AI will affect prices in the long run, she acknowledged that there are still many unresolved long-term questions at present.
Hammack didn’t spell out how much they would add next, but she has strongly supported using rate hikes to rein in inflation. The background data is that in July the US PCE price index rose 3.7% year over year, and core inflation is still above the Federal Reserve’s 2% target.
Earlier this month, after the Federal Reserve raised interest rates and lifted the range to 3.75% to 4%, officials are expected to hike one more time before the end of the year. However, market participants generally believe that the final amount the Fed raises will exceed this expectation.
On the same day, Kansas City’s Schmid also poured cold water on the discussion in a local event. He said that inflation has been above the 2% target for more than five years: “We still haven’t solved the inflation problem.” When it came to US Treasury bonds, he said bluntly that the level of US debt is “very extreme,” hinting at long-term fiscal risks facing the United States. When asked about AI, he even questioned whether this ecosystem is already “too big to fail.” Schmid has no voting power on monetary policy this year, but he voted in favor of the rate hike this month.
New York Fed President Williams singled out supply shocks, again emphasizing that the current inflation situation is still quite severe. He warned that when trying to bring inflation back to the 2% target, it’s not something that can ignore ongoing supply shocks. He believes the labor market is not currently the source of inflation pressure, and that tariffs themselves typically do not cause persistent inflation; what is truly worrying is that repeated supply shocks will continue to push up prices, making it harder for inflation to return to the target level. The day before, he also said the Federal Reserve may need to raise rates once more within the year to mitigate inflation risks, because the inflation problem is still a challenge that must be brought back to the target in a timely manner.
Last Thursday, the Philadelphia Fed’s Pat Houlson added another point: as long as the economic outlook stays in line with expectations, the Federal Reserve may still need to raise rates further to push inflation back to the 2% target.
Finally, look at market pricing. The CME FedWatch tool shows that the probability of the October meeting staying on hold and keeping the range at 3.75% to 4% is only 35.8%, while the probability of a 25-basis-point hike is already 64.2%—in other words, the market is currently leaning toward believing that further rate hikes will continue.#Circle在Solana增发5亿枚USDC $ZEC
