The Zhitong Finance App learned that a number of Federal Reserve officials sent hawkish signals one after another on Tuesday, believing that US inflationary pressure is still stubborn and that monetary policy still needs to be further tightened. Among them, Federal Reserve Governor Bowman said that continued high inflation and a steady labor market mean that the Federal Reserve still needs to continue to raise interest rates. At the same time, he warned that if the return on artificial intelligence (AI) investment fails to meet market expectations, US stocks may face drastic adjustments, which will have an impact on consumer spending and the overall economy.
Meanwhile, Federal Reserve Governor Waller proposed that the December meeting should consider raising interest rates by 50 basis points in one go; Dallas Federal Reserve Chairman Logan believes that at least two 25 basis point rate hikes are needed. Kansas City Federal Reserve Chairman Schmid also said that the current monetary policy is still relatively loose and supports dealing with inflation through further tightening policies.
While attending an American Foreign Relations Association event in Washington on Tuesday, Bauman said that the US economy is facing multiple potential risks from the financial market, including sharp adjustments in stock market valuations caused by AI investment returns falling short of expectations, and a sharp rise in long-term market interest rates. “Falling stock prices may weaken the resilience of consumer spending, while rising interest rates may further increase pressure on interest-sensitive sectors of the economy, such as housing and small business investment,” she said.
Bauman is particularly concerned about the financing risks behind the boom in AI infrastructure construction. She said that the size of AI-related debt is growing rapidly, and corporate bonds, private credit, and project financing have all expanded significantly, and the related financing scale is expected to exceed 800 billion US dollars this year.
Bauman pointed out that with high credit ratings, large cloud computing companies and technology companies have assumed some off-balance sheet liabilities, enabling smaller and riskier enterprises to use this credit support to obtain asset-backed financing for data center construction and accelerated computing equipment procurement.
Large cloud computing companies and chip design companies also support small and medium-sized AI companies that purchase their products through equity investment, forming complex financial and commercial relationships. Bauman believes that these transaction arrangements show the characteristics of “circular financing” and may deepen risk relationships within the AI industry chain.
In terms of monetary policy, Bauman said that she currently sees that inflationary pressure continues, and labor market conditions seem to be improving, which shows that the Federal Reserve still has work to do to push inflation back to the 2% target. She pointed out that although some of the factors driving current inflation are expected to subside next year, actual inflation performance is more stubborn than previously expected, and recently released data is also higher than her original forecast.
The Federal Reserve raised the benchmark interest rate by 25 basis points in September, the first rate hike since 2023, and then decided to keep interest rates unchanged at the October 27-28 meeting. Bauman said that she supports the suspension of interest rate hikes in October to give the Federal Reserve more time to evaluate changes in the economic situation and the impact of the September rate hike on basic economic trends. However, as recent inflation data continues to be strong, Bauman hinted that she might support another rate hike at the last interest rate meeting of the year to be held in December.
On the same day, Federal Reserve Governor Waller released a more aggressive policy signal, believing that the Federal Reserve should consider raising interest rates by 50 basis points in December instead of the usual 25 basis points. After Waller made these remarks, data released by the US Department of Labor showed that consumer price increases in October exceeded market expectations, and the core consumer price index (CPI), which excludes food and energy, rose 0.3% month-on-month, reaching the inflation threshold previously proposed by Waller that could support a larger rate hike.
Dallas Federal Reserve Chairman Logan also reiterated that the current economic outlook still requires the Federal Reserve to further raise interest rates. Logan said at a conference in Houston: “Given the current economic outlook, I still have a clear view that the Federal Open Market Committee still needs to implement at least two 25 basis point rate hikes.”
However, Logan did not clearly support a one-time interest rate hike of 50 basis points, indicating that although some officials agree on continuing to tighten the policy, they still have different opinions on the exact extent of the rate hike.
Kansas City Federal Reserve Chairman Schmid said at an energy conference co-hosted by the Dallas Federal Reserve and the Kansas City Federal Reserve on Tuesday that inflation is still the top issue facing the Federal Reserve, and the current interest rate level does not clearly limit the economy. Schmid said, “I didn't think our interest rates were limited last year, and I believe the current policy is still quite relaxed.”
He pointed out that his focus is on what aspects of the Federal Reserve's policy decisions can most effectively influence the current trend of inflation in the economy.
Schmid also said that in addition to rising energy prices, other sectors of the US economy are also experiencing price changes worth watching out for. In particular, he mentioned that the housing market is showing complex dynamics, yet no obvious policy restrictions have been found in other areas of the economy.
Earlier, the interest rate forecast announced by the Federal Reserve in September showed that most officials expected to raise interest rates at least once this year to push inflation back to the long-term target of 2%. Recent speeches by several officials have further strengthened this policy trend, but there are still differences over the speed and extent of interest rate hikes.