What smart people in business and economics are saying about the Fed interest rate hike

• The Fed raised rates by a quarter point, its first hike in three years.
• Fed Chair Kevin Warsh said the move would not immediately lower individual prices.
• Here is what economists and analysts say could come next.

Justin Wolfers, professor of public policy and economics at the University of MichiganJacob Robbins, assistant professor of economics at the University of Illinois at ChicagoOlu Sonola, head of US economics at Fitch RatingsOlu Sonola, head of US economics at Fitch Ratings, said in commentary that the inflation projections point to a “longer course of treatment” and that the “robust economy” gives the Fed room to raise rates further.

“This unanimous decision should maintain the Fed’s inflation-fighting credibility against a politically sensitive backdrop,” Sonola said on Wednesday, “But the economy’s ability to withstand higher rates should not be confused with consumers’ ability to absorb them.”

“Aggregate resilience will mask a widening divide between consumers insulated from higher rates and those being squeezed by increasingly expensive credit,” Sonola added.

Andrew Davis, head of investment strategy at Bryn Mawr Trust

Andrew Davis, the head of investment strategy at Bryn Mawr Trust and a former analyst at the Bureau of Labor Statistics, said in commentary that the latest interest-rate move reflects a Fed “less comfortable waiting for inflation to resolve itself.”

“Persistent inflation and renewed pressure from rising energy costs have shifted the balance enough that policymakers appear willing to tighten again,” Davis said.

Kay Haigh, global head and chief investment officer of fixed income and liquidity solutions at Goldman Sachs Asset Management

Kay Haigh, global head and chief investment officer of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in commentary that the Fed has signaled that it’s not planning an aggressive series of rate hikes.

“Most FOMC members see a total of two hikes this year per the SEP, and it will likely skip October’s meeting given its proximity to the midterm elections,” Haigh said. “One more hike this year in December is our base case, although this remains contingent on upcoming CPI reports and the path of energy prices.”

Oren Klachkin, financial market economist for Nationwide

Oren Klachkin, a financial market economist for Nationwide, said in commentary that he expects another quarter-point hike before the end of the year because inflation is unlikely to ease significantly anytime soon.

“Our baseline forecast doesn’t expect inflation to cool meaningfully until well into 2027 and given percolating risks it could take a while for policymakers to hit their goal,” Klachkin said.

Seema Shah, chief global strategist at Principal Asset Management

Seema Shah, chief global strategist at Principal Asset Management, said in commentary the Fed’s unanimous vote suggests another hike may be necessary.

“The unanimous vote shows that rising energy prices and stubborn inflation have brought even the doves on board, making a one-and-done move highly unlikely,” Shah said.

“With markets already pricing multiple increases, policymakers will probably need to deliver at least one more hike to safeguard credibility,” Shah added.

Freya Beamish, chief economist at TS Lombard

The Fed’s latest rate hike suggests policymakers are looking beyond higher energy prices to broader inflation pressures in the US economy, according to Freya Beamish, chief economist at TS Lombard.

“This was not just about inflation having been too high for too long, but also about the economy strengthening from a starting point of full employment, while inflation currently is not progressing towards target,” she wrote.

Beamish said AI-driven wealth effects are supporting consumer spending, meaning a quarter-point rate hike alone is unlikely to slow borrowing or demand.

Vishnu Varathan, head of macro strategy for Asia-Pacific at Mizuho

The Fed’s latest move is “a credibly hawkish hike,” wrote Vishnu Varathan, the head of macro strategy for Asia-Pacific at Mizuho.

The quarter-point increase was backed by the Fed’s hawkish messaging and updated rate projections, reinforcing expectations for further tightening, he added.

However, even a more credible Fed is unlikely to bring long-term Treasury yields down sharply, as fiscal pressures, geopolitical risks, and AI-driven investment continue to push yields higher, he wrote.

James Thorne, chief market strategist at Wellington-Altus

The Fed risks raising interest rates too aggressively even as inflation continues to cool, wrote James Thorne, chief market strategist at Wellington-Altus, on X.

Thorne argued that higher interest rates take time to work through the economy, warning that another rate hike could unnecessarily increase the risk of a recession.

“Credibility does not come from permanently sounding tough. It comes from showing that policy follows the data and an intelligible economic framework,” he wrote.

Charu Chanana, chief investment strategist at Saxo

The Fed’s quarter-point rate hike was less important than the message behind it, as policymakers signaled a higher-for-longer rate path and left the door open to further tightening, wrote Charu Chanana, the chief investment strategist at Saxo.

The Fed’s stronger economic outlook was central to that message.

“In other words, the Fed is not describing an economy that needs protection from higher interest rates,” Chanana wrote.

Chanana said the key market test is whether the 10-year Treasury yield, now around 5%, remains stable, which would suggest investors see the Fed as regaining credibility.

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