MediumIV Macro Policy & Sovereign Debt13 October 2026, Tuesday
Williams sees one more hike as markets price a tougher 2027
New York Fed President and FOMC Vice Chair Williams told Bloomberg on 13 October that he still thinks one more rate hike may be appropriate in 2026, and that he currently sees no reason for further hikes in 2027.
According to Reuters on Investing.com, the Fed raised its policy rate by 25 basis points in September to a range of 3.75–4.00%. Williams's 29 September speech in Buffalo had led investors to price out a hike at the 27–28 October meeting. Williams said the economy is not broadly overheating and projected inflation close to the 2% target for 2027 as a whole.
ActionForex says investors on CME FedWatch put a probability of about 90% on the policy rate ending 2027 at least 50 basis points above today's level. That 90% pricing is more hawkish than Williams's view of limited tightening. FXStreet reported on 14 October that CME pricing shows a 77.3% probability of a hold in October and 87.8% for a hike in December.
Williams said on 13 October that near-term pressures stem from energy prices linked to the Middle East war and from technology investment. His comments came a day before September CPI, due at 15:30 TRT on 14 October; consensus is 3.6% for headline and 2.5% for core on an annual basis.
Talay assessment
Bottom line
The Fed's number two is sketching the end of tightening, while the market prices a cycle that runs into 2027. The 14 October CPI and subsequent data will close the gap. If core inflation stays around 2.5%, Williams's limited cycle prevails; if it overshoots, the market is proved right and yields at the far end of the curve stay high.
Likely effects
- US yield curveUncertainWeeks
Williams seeing no hike in 2027 caps the front end; the market's 90% pricing keeps the belly elevated and leaves the shape of the curve dependent on data.
- DollarNegativeWeeks
Pricing an 87.8% chance of a December hike keeps dollar rate differentials wide; pressure on emerging-market currencies persists.
- TürkiyeNegative1–6 months
A December Fed hike keeps the CBRT's room to cut and demand for lira carry trades competing with US real yields.
Possibilities, ranked
- 1Final hike in December55%
The Fed holds in October, raises by 25 basis points in December and stays put in 2027; Williams's line plays out.
Watch: December guidance in the 28 October FOMC statement
- 2Cycle extends into 202730%
Core inflation beats expectations, confirming the market's pricing of an extra 50 basis points of tightening.
Watch: September core CPI on 14 October exceeding 2.5%
- 3Surprise October hike15%
CPI and PPI both come in hot, and the Fed brings the hike forward to 27–28 October.
Watch: CME FedWatch October hike probability exceeding 50%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- December hike probability▼ 87.8%
- October hold probability▲ 77.3%
Sources
- Investing.com (Reuters) — Fed's Williams sees no need for rate hike in 2027, Bloomberg News reports
- ActionForex — Fed's Williams sees one more hike in 2026, but no clear need for more in 2027
- FXStreet — British Pound strengthens above 1.3250, traders await US CPI inflation data
- investingLive — Week ahead: US inflation and retail sales lead a busy economic calendar