ING Sees One-Off Rate Hike as Inflation Converges to Target

ING economists James Knightley, Padhraic Garvey, and Chris Turner now expect a 25bp Federal Reserve rate hike in September, following Chair Kevin Warsh's Jackson Hole remarks. The move is seen as a one-off adjustment rather than the start of a tightening cycle. The data since then has justified their decision, with weak wage growth and softer housing helping inflation converge to 2% next year.

The economists argue that the assumption of multiple rate hikes after the initial move may not hold this time around. They note that financial markets are pricing two and a half further rate hikes, but they believe one and done might be the case. This is due to weak wage growth, tariff refunds, and a stagnant housing market, which will slow shelter inflation.

The ING economists expect the Fed to project slightly lower inflation than their June forecast, with 4% as their end-2026 and end-2027 Fed funds forecast before it heads back to 3.1%. They also believe that the dollar does not need to rally too far, as they think this is a recalibration of Fed policy rather than a new cycle.