Fed: Context among its members grows regarding a new rate hike before the year ends

Christopher Waller, a member of the Board of Governors of the Federal Reserve (Fed) since 2020, noted that the Fed will likely have to implement new rate hikes to accelerate the decrease in inflation. However, he also pointed out that this does not necessarily imply two consecutive hikes, which leaves the door open to the possibility of no changes in this month's meeting.{#p-1791463065528-91177}

During a speech given this Thursday at an event in Istanbul organized by the central bank of Turkey, Waller stated that "if economic data continues to evolve as expected", he anticipates new rate increases to promote a more timely return of inflation to the 2% year-on-year target.{#p-1791465207242-96348}

He clarified that "there is some flexibility regarding when these increases will occur", so "it is not necessary for them to happen in consecutive meetings." However, he did mention that "they should be implemented within a reasonable timeframe".{#p-1791465283354-86102}

The Fed governor affirmed that the decision to raise rates last month was not the result of a single data point, but rather the accumulation of several signals indicating that American inflation remains at elevated levels.{#p-1791465387520-41175}

Additionally, he considered that the U.S. economy will strengthen during the second half and stated that he is not overly concerned that higher interest rates could significantly slow down growth.{#p-1791465699425-67283}

"But I am concerned that the recent acceleration of inflation --- it has been five and a half years above the FOMC's target (Federal Open Market Committee) --- may lead consumers, investors, and price-setting businesses to revise their expectations for future inflation upwards," he added.{#p-1791465482853-79061}

Waller's message aligns with statements made by other senior Fed officials --- such as John Williams and Phillip Jefferson --- in recent days, suggesting that the U.S. central bank still has time to assess the health of the economy before considering another rate hike.{#p-1791464120747-8697}

The market assigns a low probability to an increase during the meeting on October 28, while December remains the most likely scenario for a new adjustment. According to the FedWatch from CME Group, there is only a 21% chance of a rate hike this month, a number that jumps to 87% for the December decision.{#p-1791467566927-45669}

The Fed discusses new rate hikes in light of persistent inflation.{#p-1791467903342-70891}

Fed Minutes: "Hawkish" bias, but waiting predominates

This Wednesday, the minutes from the FOMC meeting in September were released. At that time, the Fed body unanimously voted to raise the target range of its reference rate for the first time since July 2023.{#p-1791467030943-28815}

From Portfolio Personal Inversores (PPI), they stated that the document "did not give signals about when the next adjustment would take place" and noted that "almost all participants warned of upward risks for inflation, which remains above the 2% target," while several FOMC members presented the September decision "as insurance against persistent price pressures."{#p-1791467095893-56688}

For his part, Pepperstone analyst Felipe Barragán commented that most FOMC members "estimated that it would likely be appropriate to have another increase before the end of the year, although recent labor data has significantly reduced the probability of an immediate move in October."{#p-1791467184224-89941}

He pointed out that the implication of this diagnosis is that the Fed "maintains a restrictive bias, but has room to evaluate new information before acting".{#p-1791467278362-66665}

However, he emphasized that "monetary discussion could become complicated again if the energy rebound translates into higher inflation expectations or if technological investment continues to sustain aggregate demand above supply capacity."{#p-1791467381493-4882}

In their analysis of the minutes, analysts from ING bank noted that there was a sentence in the document that caught their attention: "Most participants considered that another increase in the target range for the federal funds rate would likely be appropriate by the end of the year."{#p-1791467391286-97076}

Experts from the Dutch bank mentioned that this consensus came after a debate about "the alarming inflation and the Federal Reserve's surprise at the pace and magnitude of AI development." They added: "It is worth noting that most references to the surge in AI investment were associated with an inflationary push."

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