Warsh Fed signals higher for longer after September rate increase

The Federal Reserve hiked interest rates on Sept. 16¹⁰. The move followed a hawkish August speech by the new Fed chairman, Kevin Warsh, and at the September meeting Warsh addressed inflation directly⁹. He described the increase as removing “a dose of accommodation”, which suggests more hikes are on the cards¹², and as essential to restoring the Fed’s credibility¹³.

New York Fed President John Williams has since said another rate hike this year is a “reasonable expectation”². Speaking in London, Williams indicated that tighter monetary policy could be required⁴ and affirmed that “it is sensible to expect another rate increase”⁵. Fed officials are signaling that the September hike may not be the last³.

Why it matters to investors

A hiking cycle inverts the assumption behind positioning built for an easing path. The diagnosis officials are offering is not a simple supply shock. Chicago Fed President Austan Goolsbee has said strong demand, including AI investment, is now adding to inflation alongside supply shocks⁶.

Cleveland Fed President Beth Hammack said on Friday that the biggest risk with inflation is the formation of an inflationary mindset⁷, arguing that the public has faced above-target inflation long enough for expectations to shift⁸. That framing matters because a demand-and-expectations story justifies tighter policy for longer than a supply story would, and it is consistent with a chair who has described the hike as credibility-restoring¹³.

What to watch

Not everyone accepts the policy. Bill Ackman has called the rate hike a mistake that could make inflation worse³, an argument that has carried into market coverage of the move¹. The dissent has a mechanism behind it: higher rates raise financing costs for the very investment that is said to be driving demand.

Watch the speeches. Williams has now made the same case on both sides of the Atlantic^4,5, and his “reasonable expectation” line is the closest thing markets have to guidance on a further move this year². Watch whether higher for longer is matched by a vote rather than by rhetoric, since the signal so far comes from a chair describing an accommodation removal¹² and from officials saying September may not be the last³. And watch the hiking bets themselves, which have been firm enough to cap gains in spot gold⁴ and to hold the euro near three-month lows⁵.