New York Federal Reserve President John Williams said Thursday that it is reasonable to expect another interest rate hike before the end of the year. Speaking at the London Macro Policy Forum, an event organized by the National Institute of Economic and Social Research, Williams indicated that further borrowing cost increases are likely as the central bank battles persistent inflation risks.
The signal comes as the Federal Reserve, under Chairman Kevin Warsh, recently raised its policy rate to a target range of 3.75 percent to 4 percent. While Williams did not explicitly commit to a move in October, he noted that the same data-driven approach used for the September hike will guide the next decision. He stated, But we have to see. We're going to collect the data and do what we did between July and September.
The End of Forward Guidance
Williams, who serves as vice-chair of the Fed’s interest rate-setting committee, declared that the era of explicit forward guidance is over. This shift aligns with the stance of Chairman Warsh, as the central bank now avoids directly signaling its next move ahead of scheduled meetings. Williams noted that September’s move had been triggered by a build-up of pressures rather than a sudden change in data.
“It’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it.”
National Institute
This pivot places more pressure on investors to parse incoming economic data. According to the CME Group’s FedWatch tool, the probability of an October rate hike has surged to 77.5 percent, a significant jump from roughly 53 percent just days prior. Futures markets are also pricing in strong odds of another increase in December.
Inflation Targets and Economic Resilience
The Fed is grappling with inflation that has overshot its 2 percent target for years. Factors contributing to this pressure include the Middle East war and the trade tariff agenda of President Donald Trump. Consequently, officials now expect inflation will not return to the target until 2029. In updated projections, 16 of 18 policymakers signalled that at least one more hike is likely before year-end, with some signaling a need for hikes before the end of 2026.
Despite these pressures, Williams observed that the U.S. and other major economies have remained resilient against energy price shocks caused by the Iran war. However, he emphasized that bringing inflation back to 2 percent in a timely manner remains the primary challenge for policymakers balancing growth and price risks. We really want to see not only inflation get back to 2%, which is absolutely essential to achieve that, but also we want to see that happen in a timely manner,
Williams said.
Susan Collins, Boston Fed President, stated Wednesday there is an increased likelihood that inflation will remain notably above the 2 percent target. Michael Barr, Fed Governor, noted that further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.
Market Volatility and PMI Data
Wall Street reacted sharply to the build-up of hawkish signals. The S&P 500 closed down 0.75 percent at 7,706.03, while the Nasdaq Composite fell 1.13 percent to 26,936.04 and the Dow Jones Industrial Average lost 352.10 points, or 0.68%, to 51,511.59. Treasury yields also spiked, with the 10-year yield popping 7 basis points to 5.058 percent, a level not seen since July 2007. The 2-year Treasury yield jumped 8 basis points to 4.464 percent, while the 30-year yield gained more than 4 basis points to 5.347 percent.
This volatility was fueled by preliminary S&P Global PMI data showing that U.S. private-sector activity expanded at its fastest pace in more than five years during September. Employment growth hit its quickest rate since 2022, strengthening the case for higher borrowing costs.
The central bank’s path forward remains contingent on the data. As Williams noted, the Fed will collect data and repeat the assessment process used between July and September before determining if another hike is appropriate by year-end.