Fed's Williams backs one more hike as traders favor 4.25% by year-end

Traders now lean toward the Fed ending 2026 with a 4.25% upper bound, after a sharp rebound from a toss-up earlier Tuesday. New York Fed President John Williams said he still considers one more rate hike this year appropriate, according to Bloomberg News. His view supports the path to 4.25%: the current upper bound is 4.00%, and one quarter-point increase would bring it to that level. Williams said he sees no current reason for another hike in 2027.

The move partly reverses the previous day's drop, when Cleveland Fed President Beth Hammack's call for quicker action toward more restrictive policy accompanied a retreat in bets on the exact 4.25% outcome. The reason for Tuesday's rebound is clearer: Williams's comments reinforce the case for one more increase this year. Reuters also reported his remarks.

Expectations for a 4.25% year-end upper bound climbed through early October, peaking on Oct. 7, then eased before rebounding on Oct. 10 and Oct. 12. After Hammack's comments, the outcome's chances fell from likely to near even. Tuesday's rally brought them back into likely territory. Across the Fed's year-end rate questions, traders' central expectation is 4.25%, with most bets spanning 4% to above 4.5%. A year-end upper bound of at least 4.5% is still unlikely. Traders also lean toward no change at the October meeting and one quarter-point increase in December.

The Fed raised its target range in September to 3.75%–4.00%. Its September projections pointed to a year-end range of 4.00%–4.25%, and minutes released Oct. 7 said most officials thought another increase would likely be appropriate, depending on incoming data.

The next test is the September CPI report on Wednesday, followed by producer-price data Thursday. The Fed meets Oct. 27–28 and Dec. 8–9. Inflation and activity data, along with officials' views on whether price pressures are easing or broadening, could alter expectations for the rate path. The December decision sets the upper bound used for this outcome.