Business · Macro & Policy

Fed Officials Signal December Rate Hike, Possibly Another in January

Federal Reserve officials signaled this week that a December rate hike is all but set and a January increase is now possible. October inflation and wholesale price data hardened the case, while housing weakness and AI-linked stock risks argue for caution.

By Alistair Sterling

November 15, 20263 min read

Fed Officials Signal December Rate Hike, Possibly Another in January

Federal Reserve officials signaled this week that the US central bank is on track to raise interest rates in December and may do so again in January. Back-to-back increases would be the first since 2023.

The policy debate has moved on from whether to hike to how fast.

Inflation data raises urgency

The October consumer-price report, released Tuesday, showed inflation accelerated and broadened across everyday goods and services. Late in the week, wholesale prices added to the pressure. They rose in October from a year earlier at their fastest pace since 2022, with transportation and warehousing costs jumping.

"Inflation is far too high," said New York Fed President John Williams. Chicago Fed's Austan Goolsbee described the data as "borderline disturbing."

Olu Sonola, head of US economics at Fitch Ratings, said December is "clearly locked and loaded for a 25-basis-point hike." A basis point is one-hundredth of a percentage point, so that is a quarter-point rise. "The real questions are how quickly the next hike follows and how many more will ultimately be needed," he said.

Officials split on pace

About half of the 19 officials who sit on the Federal Open Market Committee, the panel that sets US interest rates, spoke over the course of the week. About half of those who will vote at the December and January meetings were among them. Their signals on size and speed were mixed.

Fed Governor Christopher Waller warned that a 50-basis-point move, or half a percentage point, may be needed next month. Dallas Fed President Lorie Logan said officials may need to hike "more rapidly" than she expected.

Cleveland Fed's Beth Hammack repeated her preference for more frequent, smaller rises. Philadelphia Fed President Anna Paulson favored a gradual pace.

Boston Fed President Susan Collins said "the appropriate direction for monetary policy is clear." She stopped short of naming a pace. "I don't want to get ahead in terms of how high we should go or how fast," she said.

Forecasts move up

Economists at Bank of America and Santander US Capital Markets raised the number of hikes they expect. Bank of America now sees increases at the next three Fed meetings. Santander projects two, in December and March.

Michael Reid, head of US economics at the Royal Bank of Canada, said the speeches suggest a worry about getting ahead of re-accelerating prices. That could mean raising the frequency of hikes and potentially the "terminal" rate, meaning how high rates should ultimately go.

Risks on the other side

The case for caution rests on parts of the economy that are vulnerable to higher borrowing costs. Sales of previously owned homes fell last month to a 16-year low. Collins acknowledged that higher rates can hurt housing affordability, but said price stability matters more in the long run for housing and the wider economy.

Fed Governor Michelle Bowman pointed to stock market volatility tied to worries about a slowdown in the artificial intelligence boom. She cautioned about a sharp downturn in share prices if returns on AI investments fall short of expectations. "Lower equity prices could undermine the resilience in consumer spending," she said.