Former Dallas Fed President: Market Too Aggressive on Rate Hike Expectations
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Former Dallas Federal Reserve President Robert Kaplan stated that bond markets are being overly aggressive in pricing in future interest rate hikes by the Federal Reserve. In an interview with Jin10, Kaplan endorsed the Fed's September rate increase as correct and suggested a potential further hike in December could be reasonable, but argued that the Fed should pause in October. He expressed concern over inflation, noting that annualized monthly data is approaching 3%. Kaplan pointed out that while the Fed's dot plot indicates one more rate hike this year, financial markets have priced in at least three additional hikes by June of next year. He observed that AI infrastructure and defense spending are booming, but sectors sensitive to federal funds rates, such as automotive, housing, and businesses serving low- and middle-income consumers, are weak or sluggish, indicating the economy is not overheating in those areas.
Source report
September 24 — Former Dallas Federal Reserve President Robert Kaplan has stated that the bond market is being overly aggressive in pricing in expectations of further interest rate hikes by the Federal Reserve.
Kaplan described the Fed's September rate hike as the correct decision, and suggested that another rate increase in December could also be reasonable. However, he indicated that the Fed should likely pause any action in October.
Inflation Concerns
Kaplan noted that inflation remains "concerning" on both a month-over-month and year-over-year basis. When monthly inflation data is annualized, he said the level approaches nearly 3%.
Market vs. Fed Expectations
According to Kaplan, the Fed's dot plot indicates one more rate hike this year, but financial markets have already priced in more than that. As of Thursday morning, market pricing reflected expectations of at least three additional rate hikes by June of next year.
Diverging Economic Sectors
"There is no doubt that AI infrastructure and application areas are booming. Additionally, for obvious reasons, defense spending is also very strong," Kaplan said.
However, he added: "But if you look at the automotive industry, housing-related companies, and businesses that serve low- and middle-income consumers, while business is not terrible, it is generally quite weak or sluggish. Therefore, in my view, those areas of the economy that are more sensitive to the federal funds rate are not currently overheating."
Source
金十数据Neutral / independent
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Kaplan: Bond market overpricing Fed rate hikes; one more move may suffice