Wall Street Interprets Walsh's Speech: Potential Rate Hike, But Limited in Scope

Huoxing Finance reports: On October 28, the Federal Reserve voted 10 to 2 to maintain the target range for the federal funds rate at 3.75% to 4%. Federal Reserve Governors Lisa Cook and Cleveland Fed President Beth Hammack voted against the decision, advocating for an immediate rate hike. Several institutions interpreted Chair Powell’s remarks as suggesting further rate increases remain possible, though future hikes may be limited. In his press conference, Powell highlighted economic resilience: first-half GDP growth was revised up to 2.4%, third-quarter growth is tracking above 3%, business investment has posted double-digit growth, and initial jobless claims are near historic lows. He argued that this strength provides the Fed with room to focus on its inflation target. Regarding financial conditions, Powell acknowledged that credit conditions tightened following the September hike but declined to characterize overall financial conditions as “tight.” Oscar Muñoz, Chief U.S. Macro Strategist at TD Securities, still expects the Fed to act in December, noting the bar for holding rates steady remains high. Deutsche Bank Senior U.S. Economist Brett Ryan pointed out that Powell’s optimistic view of growth and his reluctance to label financial conditions as tight reinforce the Fed’s September projection of one more rate hike this year. Ryan believes Powell is signaling further tightening without explicitly stating it. However, Powell also emphasized that stronger growth does not necessarily mean growth is fueling inflation or requires higher rates; the Fed’s goal is not to hinder economic activity or cause unemployment. Vincent Reinhart, Chief Economist at BNY Investments, summarized this as Powell laying the groundwork for further tightening while also setting boundaries—that excessive tightening is unnecessary. The voting structure also drew attention. Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari, who had previously warned of high inflation risks, supported holding rates steady this time. Kathy Bostjancic, Chief Economist at Nationwide, suggested their support for a pause likely stems from an expectation that the Fed will hike again in December—a judgment on their voting motivation, not a policy commitment. Market reactions indicated some traders found the remarks less hawkish than expected: the two-year U.S. Treasury yield fell 4 basis points to 4.7%, while longer-term yields edged higher. Reports indicate futures markets currently price in one rate hike in December and another in March next year. Powell stressed that there remains a “data-rich window” between now and the December meeting, with new growth and inflation data set to inform policy decisions.