Week of September 28: Two vice chairs say the Fed can wait, and markets shift the next hike to December
The Fed's two vice chairs said the September rate increase bought time and no further move is urgent, pulling a likely October hike off the table, while Dallas and Minneapolis kept pressing for more and the week's inflation and jobs data softened.
The Federal Open Market Committee raised its target range for the federal funds rate to 3.75%–4.00% on September 16, and most of its members expected one more increase before the year ended. 12 The first full week of October turned that expectation into a question of timing. Both of the Fed's vice chairs answered it the same way: the next move can wait.
John Williams, president of the New York Fed and vice chair of the FOMC, told an audience at the University at Buffalo on September 29 that with the September increase in place "there is no need for urgency," and that "one further upward adjustment of the federal funds target range may be appropriate late this year." 3 Philip Jefferson, vice chair of the Board of Governors, said two days later at the University of Virginia that "my colleagues and I will need to come to our own judgment, which may take more time." 4
Markets did the dating the officials left open. The chance of an increase at the October 27–28 meeting stood near 69% a week earlier, fell to about 45% ahead of the August inflation report and to 28% after it, and dropped to about 17% once Friday's payrolls figure landed. 56 The next increase is now priced for December. 7
Two releases gave the Fed the room to wait. The personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 3.4% over the twelve months to August, and core prices, which strip out food and energy, rose 3.0% — both below forecasts and both holding July's pace. 8 September hiring then came in at 29,000 jobs against a forecast of about 84,000, and the unemployment rate edged up to 4.2%. 9
The week's hawks kept their case. Dallas Fed President Lorie Logan called the September increase a "first step" and said the target range "needs to rise an additional 50 basis points or more." 10 Governor Michael Barr said further adjustments are "likely to be needed." 11 Cleveland Fed President Beth Hammack, appearing on PBS after the jobs report, gave the Fed "a pretty good mark" on employment and put her concern on inflation, which has missed the 2% target for more than five and a half years. 12 Minneapolis Fed President Neel Kashkari said he expects one more increase this year and another in 2027. 7
The signal table
Three label values in the table need defining. No new signal means the member published no qualifying monetary-policy communication in the September 28–October 5 window. No monetary policy signal marks a public appearance whose published text covers supervision, payments, or market operations, and it carries no tone read. Signal gap marks a position that moved with no published explanation of why; the one carried in recent issues, Dallas's Logan, closed this week.
The table covers the twelve current voting members of the Federal Open Market Committee, and Reserve Bank presidents without a 2026 vote sit outside this digest. 13
| Voting member | Role | Window result and source | Tone read | Policy signal and asset implication |
|---|---|---|---|---|
| Kevin Warsh | Chair, Board of Governors | No appearance or release in the window; the Board's speeches archive shows his most recent speech on August 28 at Jackson Hole, and the October 2 posting of his August calendar is a records release rather than a communication. 1415 | No new signal | The chair has withheld the forward guidance his colleagues keep supplying, leaving the front end to price the other eleven members. |
| John C. Williams | Vice Chair, Federal Reserve Bank of New York | September 29: "Unwavering Dedication" at the University at Buffalo. 3 | Hawkish | "There is no need for urgency," and "one further upward adjustment ... may be appropriate late this year." He tied the timing to the data and forecast inflation of 3.5% this year, just above 2% next year, and 2% in 2028. A December move stays live, and October's odds fall. |
| Michael S. Barr | Governor, Board of Governors | September 29: "Economic Conditions and Monetary Policy" at the Detroit Economic Club. 11 | Hawkish | "In my base case, further policy adjustments are likely to be needed." He counted "only two months of data consistent with 2 percent core PCE inflation over the past 20 months." He keeps the tightening bias alive and supports the front end's hawkish tail. |
| Michelle W. Bowman | Vice Chair for Supervision, Board of Governors | September 29: opening remarks at the Community Bank Cyber Workshop; October 1: "Modernizing Financial Regulation: Initial Observations from eSLR" at the Atlantic Council. 1617 | No monetary policy signal | Both texts cover supervision and bank capital. Her eSLR remarks concern Treasury market functioning, which carries monetary policy, but offer no rate-path read. |
| Lisa D. Cook | Governor, Board of Governors | September 28: "An Update on AI and the Economy" in Oakland; September 30: "The Dual Mandate in Rural America" at the Richmond Fed. 1819 | Neutral-hawkish | AI price increases are partly a shift of demand into one sector, and "attempting to fight sector-specific inflation with monetary policy could be a mistake." She voted for the September increase and gave no further-hike call. A caution against pricing more increases off the AI price surge. |
| Beth M. Hammack | President, Federal Reserve Bank of Cleveland | October 2: interview on PBS NewsHour, reported by Reuters. 1220 | Hawkish | Employment sits near her maximum, and her concern sits on inflation; the twelve-month average of 41,000 jobs a month is "largely in line with my estimate of what the break-even is." She said "there's a lot of time" before the October meeting. Keeps inflation risk priced even as the near-term odds fall. |
| Philip N. Jefferson | Vice Chair, Board of Governors | October 1: "The U.S. Economy and Monetary Policy" at the University of Virginia's Darden School. 4 | Neutral-hawkish | "Any future adjustments in policy should be determined by carefully examining trends in the data ... which may take more time." He supported the September increase and put August PCE inflation at 3.4%, with upside risks. Patience; his remarks locked in the October repricing. |
| Neel Kashkari | President, Federal Reserve Bank of Minneapolis | October 1: interview with Reuters. 7 | Hawkish | He expects one more increase this year and another in 2027, raised his estimate of the neutral rate to 3.25%, and said he has "no strong view" on whether the next move comes in October. Direction up, timing open. |
| Lorie K. Logan | President, Federal Reserve Bank of Dallas | October 1: opening remarks at Voices of the Eleventh District; October 2: welcome remarks at the Dallas Fed's migration workshop. 1021 | Hawkish | "The stance of policy has been offsides," and the target range "needs to rise an additional 50 basis points or more." Signal gap closed. The most explicit call in the window; it supports higher front-end rates and a steeper curve. |
| Anna Paulson | President, Federal Reserve Bank of Philadelphia | No qualifying remark in the window; her September 24 fintech remarks belong to the previous issue, and the Philadelphia Fed shows her most recent entry on that date. 2223 | No new signal | Her September 24 condition — "some modest further tightening may be warranted" — carries over from last week. |
| Jerome H. Powell | Governor, Board of Governors | No appearance or release in the window; the Board's speeches archive shows his most recent speech on May 31. 1415 | No new signal | Nothing new from the former chair this week. |
| Christopher J. Waller | Governor, Board of Governors | September 29: "Payments in the Age of AI Agents" at Sibos 2026; October 1: "The Data Version of Godzilla versus Kong" at the St. Louis Fed's FRED Con. 2425 | No monetary policy signal | Both texts cover payments, data infrastructure, and AI, and carry no rate-path read, leaving his September 3 conditional-hold stance unaddressed. |
The two vice chairs say the September move bought time
Williams built his argument from a shift in the risk balance rather than from a single number. "With the economy proving resilient in the face of shocks and with underlying demand strengthening, the risk to maximum employment has receded," he said. "At the same time, the risk to achieving price stability has increased." 3
He named three sources of the inflation pickup: higher tariffs on imported goods, supply-chain disruptions and higher energy prices from the conflicts in the Middle East, and demand for goods tied to the AI buildout. Tariffs, he said, "are no longer adding to inflation in goods prices." The other two remain, and he now expects "somewhat larger and longer-lasting effects from energy prices on inflation." He put inflation at 3.7% and said it is "unquestionably too high." That reading predated the August inflation report released the next day, which put headline PCE inflation at 3.4% and core at 3.0%. 38
His forecast has growth at about 2¼% this year and next, unemployment edging down to about 4%, and inflation at 3½% this year, just above 2% next year, and 2% in 2028. 3
Jefferson described the same economy and drew a more open conclusion. "Inflation is too high and has exceeded the Federal Reserve's 2 percent target for more than five years," he said, while the risks to activity and employment look "roughly balanced" and the risks to inflation are "tilted to the upside." He pointed to energy as the main driver of the headline pickup, to core services excluding housing edging up this year, and to AI-linked demand lifting core goods prices. 4
He supported the September increase "to ensure longer-term inflation expectations remain well anchored." On the path ahead, he gave a method rather than a date: "any future adjustments in policy should be determined by carefully examining trends in the data, the evolving outlook, and the balance of risks." Then he noted what the bond market had done since the meeting — "yields across the term structure have increased further" — and concluded that "my colleagues and I will need to come to our own judgment, which may take more time." 4
Dallas and Minneapolis keep asking for more
Logan used her October 1 remarks in Dallas to state a target in basis points, the most specific number any voting member gave this week. "Inflation is falling as transitory factors fade," she said. "But it is trending toward the mid-2's" — above the FOMC's 2% goal. With growth strengthening and unemployment at 4.1%, near most estimates of its lowest sustainable level, she concluded that "the stance of policy has been offsides." 10
Her prescription: "I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals." She framed the near-term moves as a reversal rather than a new campaign — "a few additional increases in the target range would undo the FOMC's risk management cuts from last fall" — and said the end goal is to make policy "modestly restrictive." 10
She also gave a read on the bond selloff. The rise in long-term yields, she said, began with expectations for strong nominal growth and a higher neutral rate, and some model-based decompositions point to higher term premiums as well. Higher term premiums "can slow the economy, reducing the need to tighten monetary policy," she added, saying she would keep watching financial conditions along with the data. 10
That text closes the signal gap that has sat under Logan's name since July. She dissented then for the increase that arrived on September 16, and she waited until this week to explain what satisfied her. 26
Kashkari matched her on direction and withheld the timing. Asked whether the next increase should come at the October meeting, he told Reuters he has "no strong view." His forecast, he said, calls for one more increase this year and another next year, and he raised his estimate of the neutral rate to 3.25%. "If the economy proves to just be incredibly resilient and inflation therefore is probably stickier than I appreciate," he said, "then policy could need to go higher yet than I'm anticipating at this moment." 7
The board's inflation hawks
Barr's September 29 speech in Detroit is built on a count of data points. "I count only two months of data consistent with 2 percent core PCE inflation over the past 20 months," he said. "And I don't yet see a clear trend toward a timely return to 2 percent." 11
His labor-market read is comfortable. Job creation has averaged around 80,000 a month this year, close to estimates of its break-even pace, and unemployment at 4.1% is close to many estimates of maximum sustainable employment. That combination, he said, lets the committee focus on inflation: "Risks to achieving our inflation target have increased, while risks to the labor market have receded, so we need to recalibrate policy to get us in a better position that more evenly balances risks to both components of our dual mandate." 11
He also connected the AI buildout to the rate path itself. A lasting productivity boost from AI would raise the returns on investment and the equilibrium interest rate — "what monetary economists would call a rise in r*," which "implies a higher setting for the policy rate." He said it is too early to know whether that is happening now, and that what is clear now is that inflation is too high. His conclusion: "In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion." 11
Hammack, in her October 2 PBS interview, treated the jobs report as one reading in a series. "I don't make too much of any one individual report," she said. Over the past twelve months, job creation has averaged 41,000 a month, "largely in line with my estimate of what the break-even is," and the unemployment rate "has continued to be stable at a low number." She scored the employment side of the mandate well and moved her concern to prices: "We have been missing on our inflation mandate for more than 5.5 years, and it's really important that we're able to bring inflation back down to our 2 percent objective." 12
Asked whether the report moved her, she stayed with the trend. "I take more signal from the trends than from any individual data point," she said, and "we will still have a lot of information before our meeting at the end of the month. And so there's a lot of time to make a decision about what the right stance of policy is." 1220
Her case for keeping at it rests on expectations. She described an "inflationary mindset" — households and firms growing tolerant of higher prices. A retailer in southern Ohio told her that after repeated supply shocks, he now raises prices by a little more than his costs, expecting more inflation ahead. "They accept it as a fact of life and they don't push back against it," she said, which is why she wants inflation expectations held near 2%. 12
Cook on AI prices and the limits of policy
Cook's two speeches took the week's AI-inflation question to its source. In Oakland on September 28, she argued that part of the surge in prices for chips, computers, and software reflects "a shift in demand toward AI-related sectors rather than an increase in economy-wide demand," and that this kind of pressure "should resolve on its own without policy intervention." She drew the policy line plainly: "attempting to fight sector-specific inflation with monetary policy could be a mistake. Our tools are too blunt to target narrow sectors, and addressing relative price shifts is not our role." 18
She then turned to the part that does reach the whole economy. Data-center investment pulls on construction labor and energy used broadly, she said, and signs of that broadening are already in the data: electricity and water costs each up about 5% over the past year, and core goods prices running above a 3% annual pace so far this year. Companies have spent "only a small fraction of the $2 trillion in announced plans," she noted, so more investment is coming. 18
She tied that timing to policy. She expects productivity gains to bring "modest disinflation within the next few years," but added that she does "not expect those effects to arrive in time to offset the broadening inflationary pressure later this year." 18
In Asheville, North Carolina, two days later, she confirmed her September vote without extending it: "I voted along with the rest of the FOMC to raise rates 25 basis points at the recent September meeting. I am committed to returning inflation to our objective while preserving the strength in the labor market." The rest of that speech was about rural economies, including the 4.3 million small businesses there that employ 7.4 million people. 19
The week's data
| Release | Figure | Comparison |
|---|---|---|
| August PCE price index (BEA, September 30) 8 | +3.4% year over year; +0.3% for the month | Forecasts pointed to a slower core; July headline was +3.4% |
| August core PCE (BEA, September 30) 8 | +3.0% year over year; +0.2% for the month | Forecast was +3.3% and +0.3% |
| September nonfarm payrolls (BLS, October 2) 9 | +29,000 | Forecast was about +84,000; July revised to −10,000, August to +133,000 |
| September unemployment rate (BLS, October 2) 9 | 4.2% | Up from 4.1% in August |
| September average hourly earnings (BLS, October 2) 9 | +3.0% year over year | The smallest twelve-month gain since May 2021 |
The two releases told a consistent story. Inflation eased on the Fed's preferred measure, and the labor market — which most officials had described as solid — delivered a print well below its recent trend. The revisions cut a further 60,000 jobs from July and August. 9
The data moved the debate's center of gravity. The hawkish case rests on the level of inflation, and 3.0% core is still 1.0 point above target. The case for waiting rests on the direction, and both headline and core PCE came in below July's pace and below forecasts. 8
What the market did with the week
Pricing moved more than the officials' words did, and it moved in one direction: toward later.
- The October 27–28 meeting. CME FedWatch odds of an increase fell from 69% a week earlier to 45% before the August inflation report and 28% after it. 5 After Williams and Jefferson spoke, Reuters put the odds near a quarter, and said global brokerages had largely shifted their calls to a single December increase. 7 By Friday, CME FedWatch put the chance of a hold at 82.8%, or about a 17% chance of an increase. 6
- The long end. The 10-year Treasury yield touched a fresh two-decade high near 5.25% on October 1, then fell 4 to 6 basis points after the payrolls miss. 527
- Gold. Spot gold, pressured all September, rose to $4,171.19 on October 1 and $4,192.30 on October 2, up about 1.1% on the week as hike odds fell. 527
- The dollar. The dollar strengthened through the week's first half, then softened after the payrolls miss as hike odds fell — one of the two forces behind gold's second straight weekly gain. 527
- Equities. The S&P 500 rose 0.49% to 7,722.93 on Friday, and the Nasdaq set a new record on the way to a third straight weekly gain, while the S&P 500 and the Dow finished the week lower. 628
The implication of that pricing depends on which scenario lands, and the twelve members disagree about which is likelier.
| Scenario | Rates and bonds | Dollar | Equities | Other risk assets |
|---|---|---|---|---|
| October increase (priced near 17%) | Front end up sharply; curve flatter; the 2-year leads | Firmer | Pressure, especially rate-sensitive sectors | Credit spreads wider; gold lower |
| December increase (the priced path) | Front end steady to higher on data; long end watches term premium | Range-bound to firmer into the meeting | Modest headwind; earnings carry more of the load | Gold and credit steady; the AI trade intact |
| No further increase this year | Front end lower; curve steeper; long end driven by term premium and supply | Softer | Support, led by rate-sensitive sectors | Gold supported; credit tighter; risk appetite up |
Where the committee stands
Across the twelve voting members, the diagnosis is settled and the speed is contested. Every member who spoke this week agreed that inflation has run above 2% for too long, and each framed the job as bringing it back to target. The split is over how much more is needed and how soon. Williams and Jefferson, the two vice chairs, said the September increase bought time and that the next move can wait. Logan set a floor of 50 more basis points, Kashkari pencilled in one increase this year and another in 2027, Barr called further adjustments "likely," and Hammack put inflation ahead of a steady labor market. Cook warned against fighting sector-specific AI prices with a policy tool too blunt for the job, which is a case against pricing many increases off that surge.
Five members left the rate path untouched. Bowman spoke only on supervision and bank capital, Waller only on payments and data, and Paulson, Powell, and the chair said nothing at all. Warsh's silence now has a shape: he has renounced the forward guidance his colleagues keep supplying, so the market's best information about the near-term path has come from the vice chairs rather than from the chair.
The question the week settled is October, and it settled it toward waiting. The question it left open is December, and it turns on data the committee will not have for weeks — the minutes of the September 15–16 meeting, due October 7, and then the October 27–28 meeting itself, where a single increase is priced and a second is the live debate.
References
- 1Federal Reserve issues FOMC statement, September 16, 2026
federalreserve.gov
- 2September 16, 2026: FOMC Projections materials, accessible version
federalreserve.gov
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- 11
- 12
- 13Federal Open Market Committee, Board of Governors
federalreserve.gov
- 142026 Speeches, Federal Reserve Board
federalreserve.gov
- 15Federal Reserve Board calendar
federalreserve.gov
- 16
- 17
- 18
- 19
- 20
- 21
- 22
- 23
- 24
- 25
- 26
- 27
- 28Markets News, Oct. 2, 2026 (Investopedia)
investopedia.com
This story was produced automatically by a channel. One sentence is all it takes for Neodrop to keep producing for you.