New York Federal Reserve President John Williams indicated on Thursday that another interest rate increase before the end of the year would be a "reasonable" expectation, reinforcing the central bank's tightening bias as markets rapidly price in a move at the upcoming October meeting.
Speaking at the London Macro Policy Forum, Williams said that "another rate hike may be appropriate by the end of the year," while emphasizing that policymakers will continue to rely on incoming data rather than a predetermined path. He stopped short of explicitly endorsing an October move, noting that the Fed's decision will be shaped by the same evidence-accumulation approach used in September.
Williams also declared that the era of explicit forward guidance is "over," a stance consistent with Fed Chairman Kevin Warsh's preference to avoid pre-committing to future policy actions. This shift leaves investors more dependent on economic releases to gauge the central bank's next move.
The Fed raised its benchmark rate by a quarter point earlier this month to a target range of 3.75% to 4%. According to the latest projections, 16 of 18 policymakers anticipate at least one more hike by year-end. Market pricing has moved sharply in that direction: CME Group's FedWatch tool now shows a 77.5% probability of an October rate hike, up from around 53% just days earlier.
Other Fed officials have echoed Williams's hawkish tone. Boston Fed President Susan Collins said Wednesday there is "an increased likelihood" that inflation remains "notably" above the Fed's 2% target, while Governor Michael Barr noted that "further policy adjustments are likely to be needed" to bring inflation down in a timely fashion.
Williams acknowledged that the US and other major economies have shown resilience to higher energy prices stemming from the Iran conflict, but he stressed that inflation remains the "big challenge" for policymakers balancing growth and price stability. "We really want to see not only inflation get back to 2%... but also we want to see that happen in a timely manner," he said.
Markets reacted sharply to the hawkish signals. Wall Street fell Wednesday as Treasury yields surged to multi-decade highs. The S&P 500 dropped 0.75% to 7,706.03, the Nasdaq Composite fell 1.13% to 26,936.04, and the Dow Jones Industrial Average lost 352.10 points, or 0.68%, to 51,511.59.
The 10-year Treasury yield climbed 7 basis points to 5.058%, a level not seen since July 2007. The 2-year yield rose 8 basis points to 4.464%, while the 30-year yield gained more than 4 basis points to 5.347%. Preliminary S&P Global PMI data showed US private-sector activity expanding at its fastest pace in more than five years, with employment growth at its quickest since 2022, adding further fuel to rate-hike expectations.
The combination of a resilient economy, persistent above-target inflation, and a Fed that has stepped back from forward guidance leaves markets more reliant on incoming data to anticipate the central bank's next move. With October odds now above 75%, investors are bracing for another quarter-point increase that could push the federal funds rate to 4%–4.25%.
This article is for informational purposes only and does not constitute financial advice.
