Traders are betting on an October move, but the New York Fed chief won't commit
Another Fed rate hike before the end of 2026 is a "reasonable" expectation, New York Federal Reserve President John Williams said Thursday, though he declined to say whether it will come in October.
Speaking at the London Macro Policy Forum, hosted by the National Institute of Economic and Social Research, Williams said market forecasts pointing to further tightening made sense to him.
"That seems to me a reasonable way of thinking about it. But we have to see. We're going to collect the data and do what we did between July and September," said Williams, who is also vice chair of the Federal Open Market Committee (FOMC), the Fed's rate-setting body.
Traders are further ahead than he is. CME Group's FedWatch tool put the probability of an October increase at 77.5% on Thursday, up from about 53% on Wednesday.
The remarks follow the Fed's first rate increase since July 2023 on Sept. 16. That day the central bank, under Chairman Kevin Warsh, raised the federal funds rate, the benchmark for overnight lending between banks, by a quarter point to a range of 3.75% to 4%.
Sixteen of 18 policymakers projected at least one more hike this year. Officials don't expect inflation to return to 2% until 2029.
Is an October Fed rate hike locked in?
Williams didn't say so. He said the era of explicit forward guidance, in which the Fed signals its next move in advance, is "over." That matches Warsh's approach.
Williams added that September's increase came from a build-up of pressures rather than one sudden change in the data.
Inflation has run above the Fed's target for years, and pressure is building from President Donald Trump's tariff agenda and the Middle East war. Williams called inflation the "big challenge."
"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," he said.
Other officials have said similar things. Fed Governor Michael Barr said Wednesday that "further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion."
Boston Fed President Susan Collins has warned inflation may stay elevated well above target.
What another hike could mean for mortgage rates
For brokers, the fed funds rate is only part of the picture. Fixed mortgage rates follow the 10-year Treasury yield. That yield briefly topped 5% earlier this month and helped push the average 30-year mortgage rate just below 7%, according to Freddie Mac data.
Lisa Sturtevant, chief economist at Bright MLS, said after the September decision that "the rate hike all but guarantees that mortgage rates will remain stuck at or above the 7% threshold, which creates a psychological and financial barrier that will sharply squeeze affordability and sideline even more prospective buyers."
Melissa Cohn, regional vice president of William Raveis Mortgage, said last week that the connection is less direct than it looks.
"In 2025, when the Fed was cutting rates, mortgage rates went up," she said.
"So, who's to say that in 2026, if the Fed raises rates, that mortgage rates can't come down?"
The FOMC next meets Oct. 27–28. The Fed has stopped signaling its moves ahead of time, so incoming inflation and jobs data will likely set the tone for borrowers' rate-lock decisions until then.
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