Three Federal Reserve officials have called for a gradual increase in interest rates this week, citing persistent inflation and strong economic growth. Dallas Fed President Lorie Logan advocated for at least two more 25-basis-point rate hikes, emphasizing a measured approach to allow households and businesses to adapt. Richmond Fed President Tom Barkin and St. Louis Fed President Alberto Musalem echoed the sentiment, highlighting the benefits of incremental adjustments over sudden changes.
The push for tighter policy comes as inflation remains above the Fed's 2% target, with September's primary inflation metric reaching 3.6%. Third-quarter economic growth accelerated, driven by consumer spending and investments in artificial intelligence. Financial market futures suggest investors expect the next rate hike in December, followed by a pause in January and another increase in March.
Despite the majority vote to pause rate adjustments at the recent Federal Open Market Committee (FOMC) meeting, dissenting views were present. Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack favored an immediate rate hike. Logan outlined a temporary endpoint for the rate increases, suggesting a pause after two more quarter-point hikes to assess economic performance.
The SPDR S&P 500 ETF (SPY) dropped about 1.6%, while the tech-heavy Invesco QQQ eased over 3% on Friday. Retail sentiment on Stocktwits was 'bullish' for the SPY but turned 'bearish' for the QQQ.