Fed's Williams Puts Another Rate Hike on Table for End of Year

New York Federal Reserve President John Williams signaled that another rate hike may be appropriate by the end of the year. Speaking at the London Macro Policy Forum, he noted that 'it's likely that another rate hike may be appropriate by the end of the year.' This statement came as Fed funds futures are pricing in a 77.5% probability of an October rate hike, up sharply from around 53% just days earlier.

Williams emphasized that policymakers still need to assess incoming data before deciding on timing. He also stressed that inflation remains the 'big challenge' for policymakers trying to balance growth and price risks. The Fed raised its benchmark rate by a quarter point earlier this month to a target range of 3.75% to 4%, and 16 of 18 policymakers signalled in their updated projections that at least one more hike is likely before year-end.

Markets reacted sharply to the hawkish tone building through the week, with Wall Street falling as Treasury yields surged following stronger-than-expected PMI data. Preliminary S&P Global PMI data showed US private-sector activity expanding at its fastest pace in more than five years in September, with employment growing at its quickest rate since 2022.