Fed's Hammack Says Rates Need to Be Higher as Hawks Line Up Before September CPI and the October 27 to 28 Meeting

Cleveland Federal Reserve President Beth Hammack said on 12 October that “interest rates need to be higher.” Inflation is “too high with the Fed having missed its 2% target for five and a half years,” she said, and “demand-side pressures from AI are not self-correcting.” She said she prefers smaller rate changes made relatively quickly, and put trend inflation in the “mid-to-high 2% range.” “Biggest risk is inflationary mindset,” she said.

She isn’t alone. On 8 October St. Louis Fed President Alberto Musalem said “more monetary policy firming will be required” and that rates “ought to be going up further” over the next six to nine months. Governor Christopher Waller said: “I anticipate additional hikes,” adding that they “do not need to come at consecutive meetings.”

Where policy stands

The Fed raised its target range to 3.75–4.00% on 16 September, its first increase in more than three years, by 12 votes to 0. Chair Kevin Warsh said: “Inflation is too high and has been for too long.” The Fed’s median projection puts the rate at 4.1% at the end of 2026, implying one more increase. The minutes of the September meeting said another increase “would likely be appropriate by year-end.” Traders expect a hold at the 27–28 October meeting and a hike in December. We covered the September decision in our economy post.

This week’s data

The Labor Department publishes September consumer prices on Wednesday 14 October. Forecasts put annual inflation at about 3.7%, up from 3.4% in August, driven by energy. Retail sales follow on 15 October.

The fiscal link

Musalem tied the outlook to Washington’s borrowing: “The US federal government has been on an unsustainable fiscal path now for the better part of two decades.” The 10-year Treasury yield reached about 5.37% on 7 October, its highest in 24 years, before closing near 5.25% on 9 October. Each increase raises what the government pays to refinance its debt. Net interest already cost $1.14 trillion in fiscal 2026, as covered in our post on interest costs.

Why it matters

Rate increases in the weeks before a midterm are rare and politically awkward. Higher borrowing costs hit mortgages and car loans, and the President has pressed the Fed for lower rates, including through his attempt to remove Governor Lisa Cook, which faces a hearing on 5 November. A Fed that keeps raising rates is a Fed showing it acts on its own read of inflation. The bond market’s view of federal deficits makes that read harder.