① Since the Federal Reserve implemented its first interest-rate hike in three years recently, several officials have called for further policy tightening; ② On Friday alone, three Fed officials signaled a hawkish stance, warning of inflation risks; ③ According to CME's "FedWatch," the probability that the Fed will raise rates by 25 basis points at its October meeting currently stands at 64.2%.
Since the Federal Reserve raised interest rates for the first time in three years recently, several officials have called for further policy tightening. On Friday alone, three Fed officials signaled a hawkish stance, sounding the alarm about inflation risks.
Beth Hammack, president of the Federal Reserve Bank of Cleveland, said Friday that she is concerned that persistently high inflation could lead the American public to come to view elevated prices as the new normal—something the Federal Reserve must not allow.
At an event hosted by her Federal Reserve district, Harker stated that, with inflation remaining above the target level for more than five years, "the greatest risk to inflation today is that an inflationary mindset could begin to take hold." She added that the Federal Reserve must fulfill its role: "We need to ensure that policy remains in a restrictive stance to help bring inflation back to our target."
Harker stated that economic growth remains robust and the labor market is stable. She expressed concern about demand‑driven inflationary pressures and noted that capital spending will continue to exert upward pressure on inflation for some time.
Hamak warned that if progress in reducing inflation stalls, inflation expectations could shift. She also noted that many long-standing questions remain about how artificial intelligence will affect inflation.
In this statement, Hamaker did not explicitly indicate what course of action she would like the Federal Reserve to take on interest rates; however, she has previously been a strong advocate for raising rates to bring inflation down. Compared with the Fed's 2% inflation target, the U.S. Personal Consumption Expenditures (PCE) price index rose 3.7% year over year in July, and the core inflation rate also remains above the Fed's target.
Earlier this month, the Federal Reserve raised interest rates, increasing the target range by 25 basis points to between 3.75% and 4%. Officials expect another rate hike before year-end, though market participants anticipate that the Fed's cumulative increases will exceed this level.
On the same day, Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, stated that inflation remains above the Fed's 2% target and that policymakers have yet to fully bring inflation under control.
"We have yet to resolve the inflation problem," Schmid said Friday at a panel discussion in Kansas City. "Inflation has remained above target for more than five consecutive years."
On the issue of U.S. government debt, Schmid noted that U.S. indebtedness appears "extremely high," suggesting long-term fiscal risks. When asked about AI, Schmid questioned whether the AI ecosystem is becoming "too big to fail."
Schmidt does not have a vote on monetary policy this year, but he has previously stated his support for the Federal Reserve to raise interest rates this month.
Meanwhile, New York Fed President John Williams reiterated on Friday the severity of the inflationary situation and warned that the Federal Reserve must not overlook persistent supply shocks as it strives to bring inflation back down to its 2% target.
Williams stated that the labor market is currently not a source of inflationary pressure, and noted that tariffs themselves typically do not cause persistent inflation. More concerning is that recurring supply shocks could continue to push up prices, making it more difficult for inflation to return to its target level.
The day before, Williams stated that the Federal Reserve might need to raise interest rates again within the year to mitigate inflation risks. He believes that inflation remains a challenge and must be brought back to the target level in a timely manner.
Philadelphia Fed President Patrick Harker also said last Thursday that, if economic conditions evolve as expected, the Federal Reserve may need to raise interest rates further to bring inflation back to its 2% target.
According to CME's "FedWatch," the probability that the Federal Reserve will hold its policy rate steady at 3.75%–4.00% at its October meeting stands at 35.8%, while the likelihood of a 25-basis-point hike is 64.2%.