New York Fed President John Williams said he has no reason now to expect increases in 2027, while Boston's Susan Collins said rates should rise "a bit further" this year. September consumer prices, due at 8:30 a.m., are expected to show inflation at 3.6%.
Two Federal Reserve officials spoke on Tuesday about the same next step. Only one of them sketched an ending.
John Williams, the New York Fed president and vice chair of the committee that sets rates, said in an interview published Tuesday that he still expects one more increase this year. "I haven't changed my view that it may be appropriate to have one more rate hike," he said. On 2027, he said, "I don't think at this time I have any reason to believe that we would need to do more," though he added that "it's still mid-October" and the data could change his view.
His reasoning rested on the shocks fading. He expects overall inflation "to be near our 2% target for the year as a whole next year," with tariffs "totally in the rearview mirror," and said, "I still believe that energy prices will not be adding to inflation next year or after that." He called the economy "not an economy that is overheating overall."
Collins's version
Collins, speaking at a Boston Fed banking conference, supported last month's increase, which lifted the federal funds target range to 3.75% to 4.00%. "I also currently expect that it will be appropriate to raise rates a bit further before the end of the year to ensure a timely and durable return of inflation to the Committee's 2 percent target," she said, adding that the timing depends on "the totality of incoming data."
Her outlook carried more risk than Williams's. Collins said inflation has been above target for five and a half years and described two alternative scenarios, one with stronger demand from AI-related optimism and one with more pressure from tariffs and energy, as "almost as likely as my modal outlook." Both, she said, would keep inflation above target for longer.
What the curve says
The bond market sits closer to Collins than to Williams. The two-year Treasury yield closed Tuesday at 4.79%, according to Treasury data, roughly 90 basis points above the 3.875% midpoint of the Fed's current range. That gap is consistent with investors expecting several more increases, not one. Futures pricing at the time of Williams's interview pointed to a December increase and two more in 2027, and the two-year yield gave back an early rise of as much as 3 basis points after his remarks were published.
Longer yields eased. The 10-year closed at 5.21%, down from 5.24% on Friday, and the 30-year at 5.56%, its fourth straight decline. Early Wednesday the 10-year was around 5.20%.
An October move looks unlikely to traders. Money markets assign it roughly a one-in-five chance for the Oct. 27 to 28 meeting, close to the 18 cents at which Kalshi's October-hike contract most recently changed hands.
The test this morning
The forecast for September's consumer-price index is a 0.6% monthly increase, which would lift the annual rate to 3.6% from August's 3.4%. Core prices, excluding food and energy, are expected to rise 0.2% on the month. Energy is expected to account for much of the headline increase, which is the kind of shock Williams says will fade and Collins says could linger.
Market implications
One reading is that the end of the cycle is in sight. The committee's vice chair, a permanent voter, sees one more increase and none next year, and he expects energy and tariff effects to drop out of inflation in 2027.
The other view is that the market is right to price more. A regional president sees two higher-inflation scenarios as nearly as likely as her base case, diesel and factory-gate prices abroad are still rising, and the two-year yield already implies a longer path than Williams described.
What to watch
The 8:30 a.m. CPI report, the Fed's Beige Book at 2 p.m., producer prices on Thursday and Fed Chairman Kevin Warsh's appearance with IMF Managing Director Kristalina Georgieva late Thursday Eastern time will shape the odds for the Oct. 28 decision and for December.