Fed's Williams and Collins Back One More Rate Hike in 2026 While Pushing Back on 2027 Tightening

Two Federal Reserve officials on October 13 signaled support for one additional interest-rate increase before year-end while diverging from market expectations for further tightening in 2027. New York Fed President John Williams said one more hike may be appropriate in 2026 but that he currently sees no need for rate increases in 2027, a notably less hawkish posture than markets, which were pricing in a December hike and two additional increases next year. Williams firmly supported the September hike and said disinflationary forces are still at play, with no sign the labor market is contributing to inflation.

Williams identified AI infrastructure demand as a specific inflation driver, noting that strong chip and data-center buildout demand is pushing up prices, with supply unlikely to catch up for several years. He nonetheless said the economy is not overheating and expects inflation to approach the Fed's 2% target in 2027 as tariff and energy shocks fade. He added that higher long-term Treasury yields are already tightening borrowing conditions.

Boston Fed President Susan Collins echoed the case for additional tightening, saying she expects the Fed to raise rates a bit further by year-end and that elevated inflation risk is the central bank's main focus. Collins said she supported the September hike, described the job market as broadly balanced, and warned that strong AI demand could overwhelm efficiency gains and push inflation higher. She noted the data-center buildout is pressuring inflation readings and said the future path of policy in the new year will depend on incoming data. Collins also confirmed the Fed is not rethinking its 2% inflation target and that its models incorporate government debt levels.

Treasury yields fell in the immediate aftermath of Williams' comments, with the 30-year yield dropping 3.42 basis points to 5.565% and the 10-year yield falling 2.51 basis points to 5.219%, while the 2-year yield held steady at 4.795%. The U.S. dollar index extended losses, falling 0.36% to 102.17. Stocks recovered from session lows, with the S&P 500 finishing little changed and semiconductor shares paring losses. Attention was already turning to the September CPI report due the following day, with Wall Street consensus estimates clustering at 3.6% to 3.7% across major banks including JPMorgan, Goldman Sachs, and Morgan Stanley.