Three Fed officials sent conflicting signals on rates Thursday: Vice Chair Philip Jefferson said he sees no urgency to raise rates again, Minneapolis Fed President Neel Kashkari said more hikes will likely be needed, and Kansas City Fed President Jeff Schmid warned that rising long-term rates are already straining housing and commercial lending. The split leaves traders guessing ahead of the October 27-28 meeting, with EUR/USD caught between the competing signals.
Jefferson sees no rush to hike again
Federal Reserve Vice Chair Philip Jefferson said Thursday that he does not see any urgency to raise interest rates again, despite having supported last month's increase. He said future policy moves should rest on a careful look at the data, the evolving outlook, and the balance of risks.
Jefferson noted that markets are reassessing the outlook amid rising bond yields, adding that he and his colleagues will need to form their own judgment, which may take more time, before the next move. The Fed raised its benchmark rate by a quarter point to the 3.75%-4.00% range at its September 15-16 meeting, and policymakers' projections point to one more increase before the end of 2026.
Kashkari still expects more hikes
Minneapolis Fed President Neel Kashkari struck a different tone, saying he expects more rate increases will be needed to slow the economy into 2027. However, he said he remains open-minded on timing and has no strong view on whether the next hike should land at the October 27-28 meeting.
Kashkari said data since the September meeting suggests the economy is doing even better than he expected, while inflation stays too elevated. According to Reuters: "I'm not seeing any evidence of systemic risk" in markets, he added, though he said the banking sector bears close watching given the rapid shift in borrowing costs.
Schmid flags strain in housing and lending
Kansas City Fed President Jeff Schmid said rising long-term rates are starting to strain housing and commercial lending, noting friction building among long-market users of credit such as multifamily housing. He said the effect is already visible on the mortgage side, where the price of credit is weighing on home valuations.
Boston Fed President Susan Collins and fellow policymaker Tom Barkin pointed to the AI investment boom as a competing force supporting demand, with Barkin noting that a trillion-dollar AI buildout helps explain why rates are climbing even as borrowing costs bite elsewhere in the economy.
What it means for EUR/USD
The diverging comments leave the rate path for the October 27-28 meeting unsettled, with financial markets broadly expecting the Fed to hold rates unchanged at that gathering even as some officials argue for further tightening. New York Fed President John Williams added to the mixed picture Tuesday, saying he sees no urgency to move now but still expects a hike before year-end.
For EUR/USD, that uncertainty keeps the dollar's near-term direction tied to incoming inflation data and the Fed's balancing act between a resilient labor market and strained credit conditions.
Sources: Investing.com, Investing.com, InvestingLive
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