Former Dallas Fed President Kaplan Says Market Is Pricing Follow-up Rate Hikes Too Aggressively

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Former Dallas Fed President: Market Too Aggressive in Pricing Fed Rate Hikes

BlockBeats reported on September 24 that former Dallas Fed President Robert Kaplan said the bond market had been too aggressive in pricing expectations for Federal Reserve rate hikes. Kaplan said the Fed's September rate hike was the right decision, another hike in December could also be reasonable, but it might be appropriate to pause in October. He said inflation was "concerning" from both a monthly and year-over-year perspective. If monthly inflation data were annualized, the level would be close to 3%.

Kaplan pointed out that the Federal Reserve dot plot indicates one more rate hike this year, but financial markets have already moved beyond that expectation. As of Thursday morning, market pricing indicated that there would be at least three more rate hikes by June next year. "There is no doubt that AI infrastructure and applications are booming. In addition, defense spending is also very strong for obvious reasons," Kaplan said. "But if you look at the auto industry, housing-related businesses, and companies serving low-income and middle-income consumers, you will find that although business is not terrible, it is quite weak or sluggish overall. Therefore, in my view, the economic sectors most affected by the federal funds rate are not currently overheated." (Jinshi)

Original link https://m.theblockbeats.info/flash/368824

Key points

Robert Kaplan said the bond market had been too aggressive in pricing expectations for Federal Reserve rate hikes.
Kaplan believes the Federal Reserve's September rate hike was the right decision, a pause in October may be appropriate, and another hike in December could be reasonable.
Kaplan said the Federal Reserve dot plot indicates one more rate hike this year, but market pricing indicates at least three more rate hikes by June next year.
Kaplan said monthly and year-over-year inflation rates are concerning, and that annualizing the monthly inflation data would put it close to 3%.
Kaplan said AI infrastructure and applications are booming, while defense spending is also very strong.
Kaplan said the auto industry, housing-related businesses, and companies serving low-income and middle-income consumers are quite weak or sluggish overall.

AI-assisted interpretation

The following is analysis, separate from reported facts. Verify important claims independently.

This report discusses expectations for the number of future rate hikes. Kaplan believes the number of rate hikes expected by the market is higher than the path shown by the Federal Reserve dot plot, while different economic sectors are performing unevenly.

Why it matters to readers

Rate hike expectations affect the bond market and interest-rate-sensitive economic sectors; this report reflects a former official's views on market pricing and economic performance.

Rate hikes generally mean higher borrowing costs. Understanding the difference between market expectations and officials' views can help explain volatility in bond and stock markets.

Risks and unknowns

The report does not provide Kaplan's original interview or the full context.
Kaplan is a former Dallas Fed president, not a current Federal Reserve policymaker.
The evidence does not indicate whether current Federal Reserve officials agree with this assessment.
The evidence does not provide a direct market or crypto-asset reaction to this view.

Former Dallas Fed President Kaplan Says Market Is Pricing Follow-up Rate Hikes Too Aggressively

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