Federal Reserve Turns Hawkish Again! This Year's Voting Member Logan: At Least Two More Rate Hikes Needed, Pace May Accelerate

Fed officials’ concerns about inflation have clearly intensified, with a more hawkish stance emerging.

This year’s FOMC voting member, Dallas Fed President Lorie Logan, stated on Tuesday that the Federal Reserve needs to raise interest rates at least two more times, and that the pace in winter may be faster than this autumn. On the same day, Fed Governor Christopher Waller called for considering a 50 basis point rate hike at the December meeting. Meanwhile, U.S. October CPI data exceeded expectations, with core inflation rising 0.3% month-over-month, further strengthening market expectations for tightening policies.

Driven by these comments and the inflation data, U.S. Treasury yields surged. The two-year Treasury yield jumped 19 basis points in one day to 4.74%, marking the largest single-day increase since Trump announced tariffs this April; the dollar strengthened sharply against all major currencies.

The market reacted quickly to the hawkish signals, with investors moving forward their expectations for the Fed’s rate hike path over the coming months, though caution remained regarding a 50 basis point hike in December.

Federal funds futures show that the market is currently pricing in a 25 basis point rate hike in December, another 25 basis points in January, and possibly one more in April; previously, consensus had centered on hikes in December and March next year.

Speaking at a conference in Houston on Tuesday, Logan made it clear: “Given the current economic outlook, I believe the Federal Open Market Committee needs to implement at least two more 25 basis point rate hikes.”

She added, “The pace of rate hikes this winter could be faster than what we have seen so far this autumn,” but the exact path will still depend on economic data and financial conditions.

Logan noted that the current monetary policy stance is still providing support to the economy and, to some extent, fueling inflationary pressures. So far this year, the stock market has rallied strongly, credit conditions remain relatively loose, and overall financial markets are still providing tailwinds to economic activity.

She pointed out that two more hikes would push the federal funds rate target range to 4.25%-4.5%, creating a moderate degree of restriction for the economy.

The Fed kept rates unchanged at its October 27-28 meeting, after raising rates by 25 basis points in September—its first rate hike since 2023—aimed at curbing inflation that has remained above the 2% target for over five consecutive years. At the September meeting, most officials forecasted at least one more rate hike this year.

Recently, several Fed officials have reiterated this view in public remarks, albeit leaning toward maintaining a gradual pace. Waller, however, has taken the most aggressive stance among them, explicitly suggesting a 50 basis point hike should be considered at the December meeting.

Logan made her inflation concerns clear. She stated that inflationary pressures are no longer confined to goods and services closely tied to energy and artificial intelligence infrastructure construction, but are starting to spread more broadly. Heightened global tensions are exacerbating supply chain disruptions, further driving up price pressures.

She also voiced caution regarding the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, to be released later this month, believing that October’s data could show a similar rebound to the CPI.

Logan warned, “The longer inflation persists above target, the greater the risk it becomes entrenched in behavioral patterns.”

She emphasized that although inflation is expected to gradually ease after energy and manufactured goods price pressures subside, “broader inflation trends are more likely to persist.” In this context, she called for implementing restrictive policies as soon as possible to achieve an appropriate balance between inflation and employment prospects.