Fed's Barr Signals More Rate Hikes as Odds of October Increase Fall

Federal Reserve Governor Michael Barr emphasized that further interest-rate increases are necessary to bring inflation back down to 2%. He stated that his base case calls for policy adjustments to achieve this goal in a timely manner. This stance contrasts with New York Fed President John Williams' more measured approach, who suggested the Fed could take time to assess incoming data before making its next move.

Barr pointed out that while growth remains strong and employment is holding up, policymakers need to give more weight to the risk of persistent inflation. He attributed rising energy costs and demand linked to artificial intelligence investment as sources of price pressure. Barr also noted that uncertainty over the Middle East conflict continues to cloud the energy outlook.

The probability of an October rate hike has fallen to about 50% from roughly 70%, according to CME FedWatch odds. This decrease in expectations follows Williams' comments, which left room for another increase later this year without committing to action at the Oct. 27-28 meeting.