Recent research reports from various Wall Street trading platforms and institutions have widely fueled expectations of aggressive interest rate hikes, with many trading firms already positioning themselves to bet on the Federal Reserve raising rates again in October. Financial market participants are increasingly convinced that Fed officials will raise rates at their October policy meeting. However, a high-ranking official at the Federal Reserve poured cold water on this overheated market sentiment on Wednesday. John Williams, president of the New York Fed, is a highly influential official with a vote on every Fed interest rate decision. As a key policy communicator within the Fed, his public statements often directly influence short-term fluctuations in the US stock, bond, and foreign exchange markets. He stated that the central bank does not need to rush into raising rates and can collect more data before taking further steps to raise rates. “After completing the policy adjustments at the September meeting, we don’t need to rush into action; we have ample time to gather more information,” Williams said in a speech at the University at Buffalo, New York. He also answered brief questions from reporters, further reinforcing the wait-and-see attitude. Earlier this month, the Federal Reserve raised interest rates by 25 basis points, increasing the interest rate range to 3.75%–4.00%. This was the Fed’s first rate hike since 2023. The resumption of the rate hike cycle after many years has already caused considerable ripples in global financial markets, with emerging market assets facing pressure from capital outflows. Inflation has been above the Fed’s 2% target for five consecutive years, drawing criticism of the central bank’s ineffective efforts to curb price increases. Fed officials are striving to strike a balance: on the one hand, using policy tools to lower prices, and on the other hand, avoiding overreacting to temporary shocks like the Iran war. If policy tightening is too aggressive, it will not only dampen business investment but also increase household credit costs, further suppressing consumer spending. Multiple rate hikes could significantly cool the economy. Williams stated that the September rate hike was intended to push inflation back to the 2% target level more promptly. "While monetary policy cannot reroute shipping capacity or restart pipelines and refining facilities, it can reduce the risk of such supply shocks spreading and evolving into broader, more persistent inflation," he said. In other words, the central bank's core objective is to avoid short-term supply disruptions and embed them into long-term inflation expectations among residents and businesses. Regarding the interest rate outlook, Williams emphasized that the Fed is focused on "underlying trends." Some economists believe the Fed will hold rates steady in October, and in their view, the "trends" Williams mentioned mean that one cannot rely solely on single-month data. Single-month inflation and employment data are easily influenced by chance factors and are insufficient as a basis for immediate monetary tightening. Furthermore, the Fed will have very limited economic data available before its October 27-28 policy meeting. Derivatives market traders pushed the probability of an October rate hike to 70% on Monday, then fell back to 60% on Tuesday. After Williams' speech, the probability further declined to slightly above 50%. The rapid decline in the probability in interest rate futures also led to a rapid drop in US Treasury yields during the session. Trader pricing indicates the market expects three more 25-basis-point rate hikes by March next year. Perhaps only one more? Williams suggests that market expectations are ahead of central bank policy. Markets tend to be extreme, with traders often prematurely pricing in future policy space. The Fed may only raise rates once more later this year, and then stop. "If the economy performs broadly as I expect, it might be appropriate to raise the target range for the federal funds rate once more later this year to push inflation back to target levels more promptly," he said. O'Mal Sharif, president of Inflation Insights, said Williams's remarks contrast with those of other Fed officials, such as Governor Michael Barr, highlighting the significant policy disagreements within the Fed and the lack of a unified policy consensus among committee members. Barr previously believed the Fed might need to raise rates multiple times. Barr stated at another public event on Tuesday that rising tariffs and the conflict with Iran "have caused us to encounter setbacks on our path to the 2% inflation target." Williams expects inflation to fall back to slightly above the Fed's 2% target next year. The Federal Reserve has two policy meetings remaining this year: one at the end of October and the other in mid-December. In economic projections released earlier this month, 16 out of 18 Fed officials expected another rate hike this year. Krishna Guha, vice president of Everco ISI Consulting, wrote in a report to clients on Monday that bond market pricing reflects market expectations of aggressive rate hikes by the Fed, indicating that Fed Chairman Kevin Warsh and his colleagues "face the risk of losing control over market interest rates and policy stance." If the market spontaneously raises interest rates too high, it could indirectly cause unexpected monetary tightening, unexpectedly impacting the real economy. Warsh has consistently emphasized that he does not favor using "forward guidance," meaning he doesn't send policy signals to the market regarding the next policy meeting, unlike his predecessor Jerome Powell. Tim Duy, chief U.S. economist at SGH Macro Advisors, said that Powell often used forward guidance as a "dovish anchor"—that is, signaling to the market that he had no intention of raising interest rates. "Now that anchor point has disappeared, in the current environment, the yield curve only has one direction for interest rates: upward," Dui wrote in a recent research report. Lacking clear policy signals, the market can only rely on each economic data point to interpret the direction of monetary policy, exacerbating asset price volatility. Influenced by Williams' speech, US stocks closed lower on Tuesday, but had recovered significantly from their intraday lows. Many funds took advantage of the market decline to buy on dips, reflecting that some investors believe expectations of interest rate hikes have cooled somewhat.