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Fed inflation battle may not be won with rate hikes, Porcelli says
Porcelli expects the Fed to keep its benchmark rate at 3.5% to 3.75% through 2026, arguing tariff and energy shocks are driving inflation.
Wells Fargo chief economist Tom Porcelli pushed back on market bets that the Federal Reserve will raise rates again, saying he expects the Fed to hold its benchmark rate through 2026.
The Fed has kept the policy rate within a 3.5% to 3.75% range all year, but traders have increased pricing for tighter policy since early summer. On Polymarket, odds for a 2026 hike are near 55%, after peaking around 78% in late July, while CME FedWatch shows a 55.6% chance of a hold at the September 16 meeting, with hike odds rising to 59.2% for October and 77.1% by December.
Porcelli argued that current inflation is tied to tariffs and energy, describing them as supply shocks that rate hikes cannot address, and that raising rates would pressure growth without cooling those prices. In his view, core inflation is already close to the Fed’s 2% goal, with core CPI near 2.5% and about 2.2% on a three-month annualized basis, and he pointed to divergence between core CPI and core PCE being driven by differing weights.
The debate is set to culminate with the September 16 FOMC decision. Porcelli’s contrarian outlook faces a hawkish turn on Wall Street, where several major banks have forecast higher rates, and policymakers dissented at the July meeting in favor of an increase, according to Yahoo Finance.