Federal Reserve officials hint at the possibility of further interest rate hikes... market expectations fall

(Seoul = Yonhap News) Reporter Joo-ho Jeong = John Williams, president of the Federal Reserve Bank of New York, said on the 29th (local time) that it may be appropriate to raise the benchmark interest rate once more at the end of this year, but that there is no need to rush.

Accordingly, market expectations that interest rates will rise at next month's Federal Open Market Committee (FOMC) meeting have been greatly reduced.

According to Bloomberg News, Governor Williams said in a speech at the University of Buffalo in New York that day, "If the economy develops broadly in line with my forecast, it may be appropriate to raise the target range for the federal funds rate once more at the end of this year to ensure that inflation returns to target more timely."

“There is no need to rush into the policy actions taken at the September meeting, and there is time to gather more information,” he said.

On the 16th, the Federal Reserve raised the base interest rate by 25bp (1bp = 0.01% point) and adjusted it to 3.75-4.00%. This is the first impression since 2023.

According to FedWatch of the Chicago Mercantile Exchange (CME), after Governor Williams' speech, the probability of an interest rate hike at the FOMC meeting on October 27-28, as reflected in the federal funds rate futures market, fell from 70.9% to 50.4%.

In a customer memo, Evercore ISI interpreted it as “most consistent with skipping October and raising the price in December.”

Governor Williams cited the Middle East conflict and the construction of AI infrastructure as major factors in inflation.

“In particular, the inflationary effects of AI-related demand shocks are becoming increasingly evident,” he said. On the other hand, it was diagnosed that tariffs no longer contribute to rising product prices.

He expects inflation to be 3.5% this year, and that the target of 2% will only be reached in 2028.

Governor Williams, an ex-officio member and vice-chairman of the FOMC, told reporters after his speech that the proximity of the October meeting to the November midterm elections was "not at all" a factor.

On the same day, other Federal Reserve personnel also joined the hike theory.

In a speech in London, St. Louis Fed President Alberto Musalem said monetary policy would remain "somewhat accommodative" even after the September hike.

“If we start to see permanent or very persistent supply shocks, we should consider responding to those persistent shocks,” Chicago Fed President Auston Goolsbee said.

Federal Reserve Director Michael Barr also hinted at the possibility of further hikes in a speech at the Detroit Economic Club, saying, "There is no clear trend yet for inflation to return to 2% in a timely manner."