Fed officials talk markets out of an October rate increase

“There is no need for urgency” on changing the current setting of monetary policy, Federal Reserve Bank of New York President John Williams said this week^1,2. Williams is the vice chair of the Fed’s rate-setting committee, and he suggested the central bank could wait before moving again⁴. The Financial Times reported that the odds of an increase have tumbled over the course of the week following his dovish remarks³. Reuters described the effect as Fed officials washing away market bets on an October rate increase².

Fed Vice Chair Philip Jefferson said officials may need more time before deciding whether to raise interest rates again¹⁵. Prepared remarks from Jefferson reinforced those of Williams⁶. Weighing more data will allow the Fed to make a better call on rates, Jefferson said⁵. One tally of market pricing put the odds of an October hike below a coin flip, and the Williams comment was credited with crushing expectations for a move this month^5,7.

The hawks have not left the room

Governor Michael Barr struck a less patient tone in a speech to the Detroit Economic Club⁷. “In my base case, further policy adjustments are likely to be” needed, Barr said there⁷. Barr said further rate hikes may be needed to bring inflation under control, and he pointed to elevated energy costs⁸. Looking ahead, if conditions evolve as he expects, “some modest further” action would follow, he said¹³.

Barr renewed his call for more interest rate increases to curb sticky inflation in the same week that the New York Fed chief said the next hike can wait⁹. Separate coverage framed the remarks as Barr signalling that more hikes are needed amid inflation risks¹⁴. Minneapolis Fed President Neel Kashkari sees one more rate hike this year and another in 2027¹². Kashkari said inflation is still too high despite PCE data that came in lower than expected¹³.

What to watch

The Fed raised rates in September, marking its first hike in three years and the first policy move under its new chief, Kevin Warsh¹¹. Goldman Sachs has since pushed its forecast for the next increase out to December¹¹. Nikkei Asia reported that revised inflation data points to an October pause and that the Fed is under less pressure to raise rates at its next meeting¹⁰.

Yahoo Finance summarised the committee’s position as in no rush to hike, with another increase still on the table⁸. The split on the board is now the variable to track, because both camps have tied the next decision to incoming data rather than to a stated plan^5,6.