The Federal Reserve is increasingly convinced that it can raise interest rates without hurting the job market by leaning on falling inflation expectations. Richmond Fed President Thomas Barkin said on the 23rd that if people believe the Fed is serious about fighting inflation, that tends to be reflected in pricing behavior, suggesting that expectation-based inflation control is possible. St. Louis Fed President Alberto Musalem also said in a Reuters interview on the 21st that, at present, the labor market is not a driver of inflation and that the Phillips curve trade-off does not necessarily arise. On the other hand, Chicago Fed President Austan Goolsbee argued that the only way for the central bank to close the supply-demand gap is to restrain demand and shrink production and employment, and such counterarguments remain strong. The July personal consumption expenditures price index rose 3.7% year on year, high enough for Fed officials to be concerned, but far from post-pandemic levels. The Fed decided at its September 16 Federal Open Market Committee meeting to raise rates for the first time in about three years, and while it projects one more quarter-point hike this year, investors have priced in three hikes by next April.
Fed raised rates for the first time in about three years and projects another quarter-point hike this year, with investors pricing in three hikes by next April, pushing the policy rate higher.
Hawkish Fed stance with a September rate hike and more hikes expected lifts the 10-year Treasury yield (bond prices fall).
