Fed Chair Kevin Warsh signaled that more rate action may follow after the FOMC held rates steady on Oct. 28. The Motley Fool's Sean Williams argues that persistently elevated inflation, partly fed by the AI build-out, could threaten the stock market's AI-driven rally.
The FOMC held interest rates steady on Oct. 28, but Fed Chair Kevin Warsh's closing remark at the press conference pointed toward further tightening. Motley Fool analyst Sean Williams reads those four words as a path toward future rate hikes.
Investors had watched to see whether the committee would raise rates for a second consecutive meeting. It did not, yet Warsh's answer to a question about missing the price-stability goal left little doubt about the direction, according to the article.
Warsh's answer on price stability
Asked why the Fed had not delivered price stability, Warsh said the questioner was right that the Fed had not achieved it. According to Warsh, in his Oct. 28 press conference answer: "you're right about that — but we're working on it."
Williams says the remark strongly implies additional hikes. He also ties it to Warsh's September comment that the FOMC had removed a dose of accommodation.
Warsh has also done away with forward guidance in FOMC statements. That change has created more guesswork for bond traders and investors, Williams writes.
Forecasts point to more hikes
Williams says forecasts overwhelmingly expect more aggressive rate hikes in December and throughout 2027. The CME Group's FedWatch Tool projects a 65% chance that rates rise by at least 75 basis points to 4.50%-4.75% by Sept. 15, 2027.
Inflation and the AI build-out
Williams says President Trump's tariffs and the Iran war have elevated inflation well above the Fed's 2% target. He cites New York Fed economists who estimated that the tariffs increased goods price inflation by 2.9 percentage points by February 2026.
He adds that the AI data center build-out is another factor the FOMC cites. Consumers pay higher prices for tech devices, while AI hardware stocks benefit from demand.
Williams warns that several hikes could hurt an AI-driven bull market. If the partially debt-financed build-out slows because of higher borrowing costs, he says, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite could suffer.
Source: The Motley Fool
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