Federal Reserve FOMC voting member Harker calls for an "immediate rate hike," yet economic data continues to release dovish signals.

Beth Hammack, president of the Cleveland Federal Reserve and a member of the Federal Open Market Committee (FOMC) in 2026, has questioned whether recent signs of slowing inflation in the U.S. can be sustained and reiterated her call for an increase in the benchmark interest rate now. However, for Wall Street financial giant Goldman Sachs and some dovish FOMC members, the current key issue is not whether inflation has returned to 2%, but whether previous shocks from oil prices and tariffs have created a true "second-round effect." Thus, they argue that the Federal Reserve may be better off holding steady (maintaining interest rates) to further achieve a "soft landing" for the economy. On Thursday local time, Hammack stated, "Im pleased to see the data, especially that prices are coming downthats a good thingbut Im not confident well continue to see this trend, nor am I confident that these data will fall low enough to bring inflation back down to 2%." While attending an event organized by the Dayton Area Chamber of Commerce in Kettering, Ohio, she also mentioned, "I think we need to take action now on interest rates." Hammack opposed the Federal Reserve's decision to keep rates unchanged last month and indicated that she would have preferred a 25 basis point increase in the benchmark interest rate. In a media interview on Monday, she stated that current rates do not impose "meaningful constraints" on the economy and that several rate adjustments may be necessary to bring inflation back to target levels; however, she does not wish to prejudge what the final rate should be. The inflation data released by the U.S. government on Wednesday showed that the core Consumer Price Index (Core CPI), excluding the usually volatile food and energy categories, rose by just 0.2% from the previous month. Economists unanimously regarded this as a relatively mild growth rate, easing pressure on policymakers to raise interest rates. Market expectations regarding the Federal Reserve's interest rate path have somewhat shifted from "whether further tightening is needed" to "hawks must provide more evidence to raise rates." However, Goldman Sachs' expectation of "holding steady for the whole year" is not unconditionalJuly's PPI still showed a year-on-year increase of 4.7%, and Reuters estimates that core PCE might still be around 3.3%. Additionally, geopolitical risks in the Middle East, the "dual energy chokepoint risk" in the Strait of Hormuz and the Strait of Mandeb, as well as rising oil prices, could lead to a resurgence of inflation in August and September. If core inflation were to reach year-on-year increases of around 0.3% or even higher over the next two to three months, the hawkish interest rate path could still be revived. With the Federal Reserve's likelihood of holding steady this year increasing, Wall Street giant Goldman Sachs is betting that "interest rate hike expectations will ultimately fall flat." After the CPI data for July and the PPI data released on Thursday, the Federal Reserve's stance of "maintaining rates at 3.50%-3.75% for the remainder of 2026" seems more suitable as a baseline scenario than "restarting a rate hike cycle," although the advantage is not significant enough to completely rule out a rate increase. The overall CPI in July rose only 0.1% month-on-month, while core CPI increased just 0.2% month-on-month and 2.5% year-on-year, aligning with the futures market's expectations of milder inflation cooling. Subsequently, the July PPI was flat at 0.0%, significantly below the market expectation of +0.2%, with the year-on-year figure dropping from 5.5% in June to 4.7%. Core PPI rose only 0.2% month-on-month and decreased year-on-year from 4.7% to around 4.2%. Meanwhile, July's nonfarm payrolls unexpectedly decreased by 23,000. This latest set of economic data suggests that the Federal Reserve is no longer facing "overheated demand + inflation accelerating again," but rather inflation remains above target yet is cooling marginally, with employment losing momentumsignificantly raising the threshold for further tightening policies under the Dual Mandate framework. Following the CPI announcement, the probability of a rate hike in September has dropped from about 54% to around 40%. After the further softness in the PPI, market pricing has generally shifted to roughly a 65% inclination to hold steady in September. This makes the prediction logic of Goldman Sachs senior economist Matheus Dibo, regarding "the Federal Reserve holding steady throughout the year," more convincing than a few days ago: the key issue is not whether inflation has returned to 2%, but whether previous shocks from oil prices and tariffs have created a true "second-round effect." Dibo believes there is still room for housing inflation to decline, the labor market is not overheated, and a wage-price spiral has not formed; thus the Federal Reserve has time to wait for more data, and the latest CPI/PPI results just reinforce this judgment. Notably, this is not a completely isolated counter view from Goldman Sachsprevious consultations and surveys of economists conducted by Bloomberg Intelligence indicated that the median expectation remains for the Federal Reserve to maintain rates unchanged for the remainder of 2026. In contrast, Hammack, Kashkari, and Logan, the three FOMC members who advocated for a 25 basis point rate increase during the July FOMC meeting with a vote of 9 to 3, still believe that current policy has not formed sufficient constraints and that "action is needed now."