Several senior Federal Reserve officials have sent signals this week suggesting that while U.S. inflation remains elevated and further rate hikes may be needed in the future, the Fed is in no hurry to act in October.

New York Fed President Williams and Fed Vice Chair Jefferson both emphasized the need to wait for more economic data before deciding the next policy path, pushing market expectations for the next rate hike from October to December.

Meanwhile, Fed Governor Cook warned that artificial intelligence (AI) infrastructure buildout could bring sustained inflationary pressure, becoming one of the main risks facing monetary policy in 2027.

Minneapolis Fed President Kashkari said he still expects one rate hike each this year and next, but is open on the exact timing of the next move.

He also noted that the U.S. economy is performing more strongly than previously expected, and current monetary policy may not be significantly restraining the economy.

Williams and Jefferson Speak in Succession, Market Pushes Rate Hike Expectations to December

The Fed raised its benchmark rate by 25 basis points to 3.75%-4.00% in September with a unanimous vote, and policymakers' rate projections at the time also showed one more hike could come before year-end.

With U.S. inflation persistently above target, financial markets had previously expected the Fed to hike again at its October 27-28 meeting, and even bet that future tightening could exceed officials' projections.

However, speeches this week by two senior Fed officials changed that expectation.

Williams, a key figure in the Fed's monetary policy decision-making system who also serves as vice chair of the Federal Open Market Committee (FOMC), said Tuesday that after the September rate hike, there is no need to rush another rate adjustment.

He believes the Fed can use the coming period to observe economic data, to more clearly judge changes in economic growth and inflation, before deciding the next policy action.

Williams still expects that if the economy broadly follows his forecast, one more rate hike later this year may be appropriate, but did not suggest it must happen in October.

Fed Vice Chair Jefferson reinforced this signal on Thursday.

In remarks prepared for an event at the University of Virginia's Darden School of Business, Jefferson said any future monetary policy adjustment should be based on careful assessment of economic data trends, changes in the outlook, and the balance of risks.

He noted that as bond yields rise, financial markets are reassessing the rate outlook, but Fed officials still need to form their own judgment, and that process may take more time.

Jefferson said that with more data, economic trends and the appropriate monetary policy stance may become clearer.

Following these remarks, the market sharply reduced bets on an October rate hike.

Currently, investors widely expect the Fed to keep rates unchanged at the October meeting and hike by another 25 basis points at its final meeting of the year on December 8-9.

Several global brokerages have also shifted their expectations for the next rate hike to December.

Analysts: Two Senior Officials Send Clear Signal That Fed Wants to Slow the Pace of Hikes

Evercore ISI analysts believe Jefferson's remarks effectively confirmed the message previously sent by Williams, namely that the Fed does not expect to hike for a second consecutive time in October, but instead wants more time to assess the economic situation.

The firm noted that with Fed Chair Warsh rarely providing clear guidance on the future rate path, the joint statements by Williams and Jefferson carry strong policy signaling significance.

SGH Macro Chief U.S. Economist Tim Duy argued that the reason Williams needed to express his position so clearly is that market bets on rate hikes had already clearly run ahead of the Fed's own policy expectations.

He pointed out that this partly reflects the impact of the Fed's current lack of clear forward guidance.

Although the market has readjusted its timing expectations for rate hikes, this does not mean the Fed has changed its overall direction of further monetary tightening.

Officials are currently emphasizing more that the timing of action should be determined by future data, rather than following the pace of consecutive hikes previously expected by the market.

Kashkari: One Hike Each This Year and Next, Current Policy Not Restrictive Enough

Minneapolis Fed President Kashkari said in an interview on Thursday that he does not have a particularly strong preference on whether the Fed's next rate hike should come in October or December.

He said that in the projections he submitted at the September policy meeting, he expected another 25 basis point hike in 2026 and a further 25 basis point hike in 2027.

However, Kashkari also noted that economic data released since the September meeting shows the U.S. economy is performing even more strongly than he previously expected, while inflation remains too high.

He warned that if the U.S. economy continues to show greater resilience than expected, causing inflation to be more stubborn than currently judged, the Fed may ultimately need to raise rates above his current forecast.

Kashkari believes that judging from the performance of the job market and overall economic output, current monetary policy may not be particularly restrictive for the economy.

He said the U.S. job market remains quite healthy and economic activity remains strong, signs that the current rate level may have relatively limited dampening effect on demand.

At the same time, Kashkari believes the recent notable rise in long-term borrowing costs partly reflects the market's reassessment of U.S. economic fundamentals, and also shows investors believe the Fed under Warsh will seriously address inflation.

Regarding recent sharp volatility in the bond market, he said he has not seen signs of systemic financial risk, and the U.S. Treasury market can still function normally and absorb price adjustments.

However, he stressed that given the rapid change in borrowing costs over a short period, the Fed still needs to closely monitor conditions in the banking sector.

Cook: AI Investment Boom May Become Main Inflation Risk in 2027

While the market focuses on the timing of the next rate hike, Fed Governor Cook has set her sights on the inflation outlook for 2027.

Speaking Thursday at an event hosted by the New York Fed, Cook said AI infrastructure construction is creating new inflationary pressures, and these pressures may not fade quickly.

She noted that the inflationary impact of AI investment is one of the economic risks for 2027 that worries her most.

Like several other Fed officials, Cook believes AI technology can raise productivity over the long term and help the economy grow faster.

But she worries that there is still great uncertainty about when the productivity gains from AI investment will actually materialize and which areas may see new supply bottlenecks in the future.

This means that before AI technology drives productivity gains and thereby easing inflation, large-scale data center construction and related infrastructure investment may first boost demand for certain goods, equipment and resources, adding price pressure.

Cook also specifically mentioned that supply shocks have occurred more frequently in recent years, and their effects have lasted longer than previously thought, which is changing how the Fed assesses monetary policy.

She said the traditional view is usually that central banks can temporarily ignore supply shocks because rate hikes cannot directly lower oil prices or end wars, and may instead suppress employment and economic output.

However, as supply shocks become more frequent and persistent, the Fed may need to reconsider the most appropriate policy response, depending on which industries are hit and how the effects transmit through the broader economy.

Geopolitical risks and supply chain disruptions from Middle East conflicts further complicate the issue.

Inflation Risks Still Tilted to the Upside, September Jobs Report Becomes Next Focus

Although several officials support delaying the next rate hike, concerns within the Fed about the inflation outlook have not clearly eased.

Data shows the inflation gauge the Fed focuses on rose 3.4% year-on-year in August, not only above the 2% policy target, but U.S. inflation has now exceeded that target for more than five and a half consecutive years.

Jefferson expects U.S. inflation to remain at a relatively high level for some time, then fall back toward the 2% target as the effects of energy and other price shocks fade.

However, he also noted that recent geopolitical developments and stronger-than-expected aggregate demand have tilted the risks to his inflation forecast to the upside.

Kashkari also said he remains somewhat confident that inflation will gradually return to the 2% target in coming years, but successive economic shocks keep bringing new uncertainty.

Next, Fed officials will focus on the U.S. September nonfarm payrolls report due Friday.

Because recent hiring data have generally been stable, several officials believe the Fed currently has some policy space to focus more attention on controlling inflation.

Therefore, unless the jobs data show a clear surprise, a single employment report may not be enough to change the market's overall judgment on the rate path again.