With October largely priced out, Tuesday’s trio keeps December in focus for the next move. Williams’ comments on 2027 cap how far markets can push expectations for the peak rate. That should limit the upside for longer-dated Treasury yields and the dollar unless the data turns. Barkin’s warning that shocks are continuing gives the hawkish camp an opening if inflation stays sticky. Oil is the swing factor. Williams’ benign outlook assumes energy won’t add to inflation next year, so a renewed crude surge, for example from escalating Houthi attacks on Saudi energy sites, would undercut that view and strengthen the case for more tightening. For now, oil is effectively a direct input into Fed pricing.
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Three Fed voices agree the inflation fight isn’t over; the open question is whether today’s shocks fade on their own or keep the Fed hiking into 2027.
Summary:
- Richmond Fed President Tom Barkin said 2% inflation is achievable, that inflation is proving enduring and that it makes sense for the Fed to act, adding that AI investment is affecting inflation
- New York Fed President John Williams said one more hike may still be appropriate in 2026, but he currently sees no reason for further increases in 2027
- Williams expects inflation near 2% for 2027 as a whole and said the economy is not overheating, blaming energy prices and tech investment for near-term pressure
- Boston Fed President Susan Collins expects a further hike before year-end and sees energy costs keeping inflation above target in coming months
- Collins (two itmes, here and here, both hawkish!) said economic uncertainty is elevated and she is watching how broad-based inflation pressures are
- The Fed raised rates to 3.75%-4.00% in September; the next meeting is October 27-28
Three Federal Reserve officials on Tuesday signalled that the fight against inflation is not over, with two backing one more interest rate increase this year, though New York Fed President John Williams suggested the tightening cycle may end there.
Richmond Fed President Tom Barkin, speaking at Howard University, said the Fed’s 2% inflation target is not out of reach and can be achieved. He said it is clear that inflation is proving enduring and that shocks to prices are continuing, making it sensible for the Fed to act. Barkin, who does not vote on policy this year, also said policymakers can see the effect of artificial intelligence investment on US inflation.
Williams, who is vice chair of the Fed’s rate-setting committee, told Bloomberg News he had not changed his view that one more rate hike may be appropriate in 2026. He said he currently sees no reason to believe the Fed would need to do more in 2027, though the outlook could change and policymakers must keep watching the data. Williams expects inflation to fall substantially next year to near 2% for 2027 as a whole, as tariff effects fade completely and energy prices stop adding to inflation. He acknowledged that high energy prices tied to the Middle East war and tech-related investment are lifting near-term pressures, but argued the economy is not overheating.
Boston Fed President Susan Collins struck a firmer tone. In prepared remarks, [she said she expects the Fed to raise rates a bit further before the end of the year] and described the risk of high inflation as elevated and the central bank’s main focus. She expects headline and core inflation to run above target in coming months because of higher prices for diesel, jet fuel and heating oil. In [follow-up comments, Collins said economic uncertainty is elevated] and that she is watching how broad-based inflation pressures are.
Together, the comments point to a Fed that agrees on the near-term direction but is split on the nature of the problem. Williams sees inflation driven by specific shocks that should fade, while Barkin’s emphasis on continuing shocks and Collins’ focus on the breadth of price pressures point to a risk that inflation proves more persistent.
The Fed raised its policy rate by a quarter point to 3.75%-4.00% in September. Williams’ comments late that month led markets to largely price out a hike at the October 27-28 meeting, leaving December as the more likely timing for the next move.
This article was written by Eamonn Sheridan at investinglive.com.