Fed's Williams, Collins and Waller Signal One More Rate Hike, Not a Series, as Waller Blames Part of High Yields on US Debt

Four Federal Reserve officials spoke on 13 October, and their message was more measured than the hawkish calls of the previous week. New York Fed President John Williams, the Fed’s vice chair for monetary policy, said one more increase “may be appropriate in 2026,” but he saw no need for increases in 2027 and expects inflation near 2% next year as the effects of tariffs and energy prices fade. The economy is “not overheating,” he said.

Boston Fed President Susan Collins said she expects to tighten “a bit further before the end of the year,” because diesel, jet fuel and heating oil will keep inflation above target in the coming months. Richmond Fed President Tom Barkin said inflation is proving persistent and that AI investment is affecting it.

Waller on yields and debt

Governor Christopher Waller, speaking in Mumbai, said the rise in long-term yields reflects real growth more than inflation: “Inflation expectations are well anchored, so all of the build-up is not coming from an inflation premium.” But he also said US debt has lost some of its safe-haven status, which he estimated adds “50 to 70 basis points” to yields, and that overnight rates are “not driving the 10-year yield much.” He said high long-term rates are already weighing on housing and car sales.

The 10-year Treasury yield eased to about 5.19% on 13 October from a 24-year high of about 5.37% the previous week. Freddie Mac’s average 30-year mortgage rate was 7.40%. Existing home sales rose 1.5% in September to an annual rate of 3.99 million, with inventory at its highest since 2019.

The calendar

The Fed raised its target range to 3.75–4.00% in September and meets again on 27 and 28 October. Markets have largely priced out an October move and see December as more likely. September consumer prices are due on 14 October, with forecasts of about 3.7% annual inflation, up from 3.4%. Cleveland Fed President Beth Hammack had said on 12 October that rates “need to be higher,” as covered in our earlier post.

Why it matters

Waller’s estimate is a rare figure from a Fed governor on what the deficit costs in borrowing rates. Half a percentage point or more on the 10-year, across $32 trillion of public debt as it’s refinanced, runs to well over $100 billion a year in extra interest over time. It also lands on households through mortgages. A December hike would fall in the lame duck, as Congress decides spending for the rest of the fiscal year and the next debt limit approaches.