According to reports, in the early hours of October 13 Beijing time, 2026 FOMC voting member and Cleveland Fed President Beth Hammack once again signaled a hawkish monetary policy stance — namely that Fed officials would rather make early, smaller policy adjustments when conditions allow than wait and later be forced into a large correction of the inflation trajectory. In her latest speech she did not explicitly endorse an October rate hike, but the sharp rebound in oil prices, persistently elevated diesel crack spreads, and 10-year and 30-year long-dated U.S. Treasury yields hovering near their highest levels in more than two decades are testing the market's dovish expectations that the Fed will pause in October and wrap up this tightening cycle soon after. The two dovish arguments — that the bond market is "raising rates on the Fed's behalf" and that cooling oil prices will bring the Fed's tightening process to an end — have encountered major challenges. As for expectations for the Fed's October policy move, recent market rate-hike pricing still leans toward the Fed's FOMC holding steady in October after the widely expected 25 basis point hike in September, with interest rate futures traders pricing only about a 20% probability of an October hike, though that pricing has risen somewhat compared with before Hammack's latest hawkish remarks.
Fed voter Hammack shatters the "dovish illusion": smaller, more frequent rate adjustments are preferable
Cleveland Federal Reserve Bank President Beth Hammack said adjusting monetary policy in smaller increments and more frequently helps keep inflation expectations anchored, but she did not explicitly back a rate hike this month. In remarks prepared for a National Association for Business Economics annual meeting in Cleveland on Monday, Hammack said: "When feasible, I generally believe that making smaller adjustments and acting relatively quickly is preferable to waiting and observing for a period and risking the need for a larger correction later." Fed officials voted unanimously to raise rates last month in response to elevated inflation. Policymakers broadly agreed that higher rates were necessary to curb price pressures reignited by the Iran war and AI-related demand. The Cleveland Fed president, who holds an FOMC monetary policy vote this year, said inflation pressures are not confined to the energy sector. She pointed to higher tariffs, as well as increased demand for electricity and tech components driven by AI computing infrastructure buildout, and surging debt issuance related to AI infrastructure, all of which are generating inflationary effects. Hammack said earlier this month that Fed officials have more information to assess before their next meeting on October 27-28, including the latest consumer price data due Wednesday evening Beijing time. Shortly afterward, two crucial Fed monetary policy decision-makers said there was no need to rush to raise rates at two consecutive FOMC meetings, after which investors sharply cut their bets on a hike this month. In a speech focused mainly on communication, Hammack stressed that Fed policymakers explaining the economic data and thought process behind their policy decisions can benefit the public and investors. She said officials explaining their so-called "reaction function" can help consumers, investors, and business leaders make smarter decisions. However, officials should not make "definitive predictions" about the future path of rates. Fed Chairman Kevin Warsh was appointed by President Donald Trump earlier this year. To avoid providing too much guidance to financial markets on the rate path, he has reduced public communication on the economy and monetary policy. "I want to draw a line here. The reaction function is not forward guidance," Hammack said. "Conflating the two completely could turn a well-intentioned logical explanation into something perceived as a commitment."
Hammack dismantles two illusory scenarios: high yields and low oil prices are neither one a guarantee the Fed will stop hiking
Hammack's latest hawkish remarks challenge two automatic inferences: that rising long-dated U.S. Treasury yields can substitute for the Fed's rate-hike process, and that falling oil prices can end inflation. The former ignores the support to demand from strong stock markets, tight credit spreads, and robust capital expenditure; the latter ignores the persistent pressures from tariffs, AI buildout, and services prices. In her latest speech she judged that overall financial conditions remain roughly neutral and suggested the real neutral rate may return to pre-financial-crisis levels. She has also stressed repeatedly in recent speeches that whether policy is sufficiently tight depends on whether demand and inflation cool. Therefore, a possible October pause, in her view, does not mean the tightening process is over; a preference for small, quick adjustments does not amount to a commitment to consecutive rate hikes. Long-term yields depend on future short-term rate expectations and term premiums. Even if the probability of a hike at one meeting declines, persistent inflation, fiscal and corporate financing supply, and geopolitical uncertainty can still push up long-term funding costs and, through cross-border asset allocation, affect financing conditions in Europe and Japan. Extrapolating from this, the major test for AI computing infrastructure-related investment — which is crucial to the trajectory of the global stock market bull run — becomes more concrete: the AI computing infrastructure buildout significantly boosts earnings while competing for power, equipment, and capital; especially after long-dated financing costs dominated by the 10-year U.S. Treasury yield rise sharply, whether project cash returns can cover funding costs will become an important dividing line for valuations. Middle East and Russia-Ukraine geopolitical ceasefires have yet to materialize, and inflation and long-dated U.S. Treasury alarms continue to echo.
Hammack's overall monetary policy stance is clearly hawkish, but she retains flexibility on the timing of action. She voted in favor of a 25 basis point hike at the July FOMC meeting; this time she emphasized the need for restrictive policy, and in an interview with reporters the same day she explicitly said the benchmark rate needs to be higher, while remaining open-minded about the October FOMC meeting. She hopes to ease demand pressures by modestly dampening business investment or wealth-effect-driven consumption, while trying to avoid damage to nonfarm payrolls. Global long-bond markets have recently sharply repriced the global long-term energy inflation trajectory: on October 7, 10-year and 30-year U.S. Treasury yields touched intraday levels of 5.368% and 5.735%, respectively, both the highest since 2002; on October 9, official data showed them easing to 5.24% and 5.60%. On October 12, the U.S. Treasury cash market was closed for a holiday. In addition, global geopolitical conditions have yet to provide reliable cooling for the outlook of rising U.S. energy costs, broad inflation, and the long-dated U.S. Treasury yield trajectory. The Russia-Ukraine energy ceasefire is still under negotiation, with Zelensky saying Russia continues to attack energy facilities; Saudi Arabia and Hormuz shipping are facing security shocks. On October 12, Brent and WTI settled up 1.84% and 2.06% at $106.65 and $93.74 per barrel, respectively. On October 9, the NYMEX front-month ultra-low-sulfur diesel crack spread versus WTI, though down $6.45, still stood at $96.80 per barrel, within a historically high range, enough to reflect that refining and refined product supply bottlenecks have not yet been resolved.
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