MediumIV Macro Policy & Sovereign Debt6 October 2026, Tuesday
Fed's Schmid and Daly keep the door open to hikes despite high yields
Kansas City Fed President Schmid said on 6 October that rates need to rise further. The same day, San Francisco Fed President Daly said another hike might be needed if tariff, energy and AI shocks reinforce one another.
According to Investing.com, Schmid acknowledged at a regional event in Oklahoma on 6 October that rising long-term yields had increased borrowing costs in some sectors. Even so, Schmid, who does not vote in 2026, stressed that the Fed focuses on short-term rates and that further action is needed. On the day of his speech the US 10-year yield stood at 5.276%. On the US Treasury's official curve, the 10-year closed at 5.27% and the 30-year at 5.64% on 6 October.
In an interview with Axios the same day, Daly listed three shocks: tariffs from April 2025, the energy shock from March 2026 and AI demand that has accelerated this year. FXStreet, in a report timed 17:55 GMT on 6 October, quoted her as saying no further hike might be needed if the three shocks leave only passing effects. The Fed usually assumes shocks fade within one to three years. Daly said relief looks further off this time, noting that some firms have turned to forward contracts for memory chips.
The noise is the falling probability of an October hike: Trading Economics shows markets pricing roughly 20%. The signal is that a Fed president on 6 October named the AI-driven chip bottleneck as an inflation channel. New York Fed President Williams said on 29 September that PCE inflation, the Fed's target measure of personal consumption expenditure prices, stood at 3.7% and that another hike might be needed by year-end. The policy rate has been at 3.75–4.00% since September.
Talay assessment
Bottom line
The two presidents' message on 6 October was to wait in October but keep a year-end hike on the table. Schmid declined to count the rise in extended-maturity yields as sufficient tightening. The Fed, in other words, does not see the term premium (the extra yield investors demand for holding extended-maturity bonds) as doing its job for it. Daly's naming of the AI chip bottleneck as an inflation channel makes it harder to treat the shocks as transitory.
Likely effects
- US Treasury yieldsNegativeWeeks
Live expectations of a near-term hike support a persistently high 30-year yield of around 5.6%.
- Semiconductor supplyNegative1–6 months
The shift towards forward contracts for memory chips raises the risk that the chip bottleneck feeds through to prices in sectors such as autos and household appliances.
- TürkiyeNegative1–6 months
By keeping a year-end hike alive, the Fed holds Türkiye's external financing costs up through a strong dollar and high US yields.
Possibilities, ranked
- 1Hold in October, hike in December55%
The Fed holds on 27–28 October and raises rates by 25 basis points at its year-end meeting.
Watch: September CPI due on 14 October and the hiking bias in FOMC minutes
- 2Hiking cycle stops30%
Energy prices retreat and the shocks fade; the Fed ends the year without a hike.
Watch: A falling Brent trend and a clear decline in PCE inflation from 3.7%
- 3Surprise October hike15%
September inflation comes in hot and the Fed raises rates by 25 basis points in October.
Watch: A sharp monthly rise in September core CPI
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- US 10-year (6 Oct, Treasury)▲ 5.27%
- US 30-year (6 Oct, Treasury)▲ 5.64%
- October hike probability▼ ≈20%
Historical context
US 10-year yield, last 6 months
- 117/09 · Fed dot plot median for 2026 rises to 4.00-4.25% while the 10-year yield eases from 5.04% to 4.94%
- 221/09 · The Fed's Goolsbee: if inflation is coming from demand, the rate response will be sharper and front-loaded
- 323/09 · US Treasury sells $70 billion of 5-year notes at 5.033%; after hot PMIs the 10-year yield hits 5.10%, its highest since 2007
- 424/09 · India's Sensex falls 1,247.71 points to 73,580; rupee presses against the 96 threshold as Brent tops $102 and the US 10-year yield exceeds 5.11%
- 524/09 · US Treasury sells 44 billion dollars of 7-year notes at 5.085%: highest yield since April 1993 as indirect demand falls to 57.2%
- 624/09 · No joint statement at Xi–Trump summit: tariff truce extended by just 2 months from 10 November to 10 January, no new decisions on chips or rare earths
- 725/09 · Michigan consumer sentiment at a 4-month low of 48.1, 1-year inflation expectations jump to 4.6%; US 30-year yield rises to 5.50%
- 827/09 · Bessent urges Fed flexibility on rates, citing AI productivity
- 928/09 · US ten-year Treasury yield climbs to a 19-year high
- 1029/09 · US long-dated yield holds above 5.5% despite Treasury buybacks
- 1130/09 · Softer US inflation erodes the odds of an October rate rise
- 1201/10 · US Treasuries pull back from their peak as two-year yield drops 10 basis points
- 1302/10 · Logan seeks 50 more basis points while most of the Fed waits
- 1405/10 · Nasdaq hits record as Treasury yields touch 24-year high
Sources
- Investing.com — Fed's Schmid says more rate hikes needed despite higher yields
- FXStreet — Fed's Daly says more hikes may be needed if shocks persist
- IndexBox — Fed's Daly warns AI chip squeeze could keep inflation elevated
- Federal Reserve Bank of New York — Williams, Unwavering Dedication (29 September 2026)
- U.S. Treasury — Daily Treasury Par Yield Curve Rates, October 2026
- Trading Economics — Gold
- The Rio Times — Global economy briefing, October 6, 2026