Federal Reserve's Hammack Warns of Inflation Risks, Signals Possible Rate Hikes by 2026

Federal Reserve official Hammack has highlighted that inflation pressures remain elevated, driven by solid output demand and ongoing supply shocks. Speaking at a recent event, Hammack warned that the risk of inflation is skewed towards the upside, posing a significant challenge for Fed policy. The comments suggest a hawkish stance, as the Federal Reserve continues to grapple with price stability amidst persistent supply-side disruptions.

This development comes in light of the latest Consumer Price Index (CPI) reading, which showed headline inflation at 3.4% in August, indicating that inflation remains above the Fed’s 2% target.

Key Takeaways

• Hammack’s remarks appear to support a scenario where further interest rate hikes could occur in 2026, as inflation risks remain elevated.
• Market pricing suggests a shift towards expecting multiple rate hikes, with the probability of two hikes in 2026 priced at approximately 48%.
• Supply chain disruptions are indicated as a key factor complicating the Federal Reserve’s policy decision-making process.

What to Watch

Markets will closely monitor upcoming inflation data releases and Federal Reserve communications for further indications of potential rate hikes. A continued rise in inflation metrics, particularly core CPI, could support additional rate hikes. Conversely, if inflation shows signs of cooling and key Federal Reserve officials indicate a pause in policy tightening, the probability of fewer or no hikes may increase. Watch for any changes in language from the Federal Reserve, particularly regarding the balance of inflation risks, as an indicator of shifting policy expectations.