Fed Sounds the Rate-Hike Alarm Again! Caught Between Heavy Energy Inflation and an AI Infrastructure Investment Frenzy, the "Anchor of Global Asset Pricing" Remains Suspended High

One of the 2028 Fed FOMC voting members, Boston Fed President Susan Collins, said late Tuesday that she leans toward supporting further Fed rate hikes this year, guarding against the heavy energy cost pressures amid geopolitical turmoil, as well as tariff policies and the AI investment wave increasingly entrenching the inflation trend. Her latest views and stance echo the overall monetary policy positions of the Fed's "number three" Williams and Cleveland Fed President Hammack, one of the 2026 Fed FOMC voting membersnamely, that one more Fed rate hike this year may be appropriate. Susan Collins said interest rates may need to be raised further before the end of this year to help curb inflation. "I currently also expect that a modest further rate increase before year-end will be appropriate to ensure inflation returns to the Fed FOMC monetary policy committee's 2% target in a timely and sustained manner," Collins said in prepared remarks for a banking conference hosted by the Boston Fed this week. Collins cautioned that her judgment on whether further accelerated rate adjustments are needed and their specific timing will depend on a series of subsequent economic data, including CPI and PCE inflation. According to the minutes of the Fed's September monetary policy meeting, the Federal Open Market Committee (i.e., the Fed FOMC) announced a 25 basis point rate hike in September, supported by all 19 policymakers. Chair Kevin Warsh described the move as removing "a dose of easing factor" from the economy. Projections published after last month's meeting showed that the median forecast of 18 Fed officials pointed to possibly one more rate hike this year; Warsh has said he does not submit projections. Recently, several Fed officials said the September rate hike gives the central bank room to observe calmly before tightening monetary policy again. Fed policymakers will meet again in Washington on October 27-28 local time. Collins said she expects the economy to continue growing and the labor market to remain near full employment. "In this scenario, continued efficiency gains will support supply-demand balance and help cool inflation, bringing it gradually back to 2%," she said in her remarks. But she warned that two other scenarios are almost as likely to occur. AI-driven demand could trigger an outsized investment boom, further boosting household spending, overheating the labor market, and keeping inflation persistently above the Fed's target. In addition, she said price pressures from tariffs and energy, especially if the Iran war continues, could prolong the inflation problem. "It is important to monitor whether high inflation remains mainly confined to energy and AI computing infrastructure construction-related categories, while price increases in other areas continue to slow, or whether there are signs of price pressures spreading," Collins said. The Boston Fed president said the current strong economy does not mean the economy is overheating. "On the contrary, I believe the strength in real economic activity reflects both robust demand and increased economic production capacity from efficiency gains," she emphasized. Collins added that the U.S. nonfarm labor market remains very stable, and faster productivity growth enables the economy to continue growing while maintaining supply-demand balance. Oil Prices Still Running a Fever, Hawkish Expectations for Further Fed Rate Hikes This Year Hard to Shake On October 13, the latest pricing trends of interest rate futures traders showed that the interest rate futures market assigned probabilities of 19% and 88% to rate hikes in October and December, respectively. Brent crude and WTI crude futures closed at $105.69 and $94.14 per barrel, respectively, meaning they have surged 46% and 42% respectively compared with before the U.S.-Iran war at the end of February. The 10-year and 30-year U.S. Treasury yields stood at 5.21% and 5.56%, respectively, surging 46 and 31 basis points from the end of August, while falling 3 and 4 basis points that dayhighlighting that the previously sharply rising 10-year Treasury yield, known as the "anchor of global asset pricing," remains suspended high and is still near its highest levels in more than two decades. In addition, the latest diplomatic maneuvering at the global geopolitical level has not yet translated into energy supply security. The U.S. and Iran remain locked in a tug-of-war over a plan to further open the Strait of Hormuz, fighting between Saudi Arabia and the Houthis has escalated, and on the night of the 13th explosions were heard near the headquarters of Saudi Aramco, one of the world's largest oil and gas giants; although Zelensky has proposed talks with a U.S. envoy, his position on a "Russia-Ukraine energy ceasefire" is still premised on Russia's compliance; Trump accused the Houthis of trying to push up international oil prices and said he may ask Turkey to join actions against the Houthis. Diesel crack spreads also remain significantly elevated, highlighting that global refined product supply pressure remains very large, and diesel is also the refined product category with the most severe energy inflation globally: data disclosed by European financial giant ING shows that on October 7 the ICE diesel crack spread was about $73 per barrel. Although below September's historic high near $90 or above, it still ranks among the highest levels in decades. On the 13th, U.S. diesel futures rose another roughly 5%, and the pressure from logistics costs feeding through to commodity prices has not dissipated, showing that expectations of additional supply are not yet sufficient to eliminate market concerns about tightness; moreover, the pressure has already transmitted to the end user: Wood Mackenzie, citing AAA data on October 13, said the U.S. diesel retail price was about $6.28 per gallon, up 71% year-on-year, clearly exceeding the roughly 41% increase in gasoline. Increased crude oil supply cannot immediately sufficient diesel delivery capacity. The Russia-Ukraine and Middle East conflicts have damaged refining and export links, and soaring shipping costs have hindered cross-regional allocation of feedstock; U.S. refineries are already operating at high utilization, and their room to further fill the global gap is constrained, with even a mismatch appearing in which some heavy crude in the Americas is piling up while refineries in Asia and Europe are scrambling for suitable feedstock. Europe's release of strategic diesel stocks can ease near-term tightness, but cannot replace the resumption of refinery production and normalization of export channels. ING also pointed out that forward crack spreads remain supported. Although Fed officials differ on the pace of rate hikes, financing cost indicators have already tightened first It is understood that Collins's monetary policy stance is clearly that of a data-dependent moderate hawkshe supported the Fed rate hike in September, continues to advocate further tightening this year, and at the same time acknowledges that productivity gains can support growth without necessarily causing overheating. She is not an FOMC voting member in 2026; the Boston Fed's next rotating voting year is 2028. At almost the same timethe Fed's "number three," namely third-ranking New York Fed President Williams, still believed on the 13th that one more rate hike this year may be appropriate, but currently sees no need to continue raising rates in 2027. He bets that underlying inflation will continue to cool and approach 2% next year: this provides a reference for the endpoint of rate hikes, but does not mean a shift to rate cuts. Around Williams's speech, one Fed official spoke before and one after. Chicago Fed President Goolsbee also said on Tuesday that the AI boom is starting to push up prices, inflation is still too high, and "if inflation remains persistently high, then I think what the Fed needs to do is very clear." Goolsbee said; Richmond Fed President Barkin said it is reasonable to take action against persistent inflation. Fed Governor Waller, who has a permanent monetary policy vote during his term, pointed out on the 13th that rising yields on 10-year and longer-dated U.S. Treasuries are restraining rate-sensitive demand such as housing and autos; combined with his position on the 8th that "rate hikes are still needed, but not necessarily at consecutive meetings," it can be seen that he places greater emphasis on the tightening effect the market has already achieved. 2026 Fed FOMC voting member Hammack advocates faster, smaller, and more frequent monetary policy adjustments to prevent inflation psychology from becoming entrenched, but has not completely locked in another rate hike in October. The 10-year U.S. Treasury is called the "anchor of global asset pricing" and a global benchmark for financing costs because of its benchmark status in the dollar financing system and in the valuation of medium- and long-term cash flows. The U.S. Treasury market is massive and actively traded, and the dollar is widely used for international financing and reserves, so changes in its yields have cross-market influencedollar corporate bonds typically reference Treasury yields of similar maturity plus a credit spread, housing mortgage rates are affected by Treasury and mortgage-backed securities pricing, and stock and real estate valuations are highly sensitive to the discount rate applied to future cash flows. When this benchmark rises while earnings and rent expectations do not improve in tandem, asset prices face downward pressure. The impact also transmits overseas through dollar financing costs, currency hedging, and cross-border capital flows; different currencies, maturities, and credit risks determine the degree to which specific assets are hit. From a theoretical perspective, the 10-year U.S. Treasury yield is equivalent to the risk-free rate indicator r on the denominator side of the DCF valuation model, an important valuation model in the stock market. If other indicators (especially cash flow expectations on the numerator side) do not change significantlyfor example, during earnings season, when the numerator side is in a vacuum period due to a lack of positive catalyststhen if the denominator level is higher or continues to operate in the historically extreme high range above 5%, the valuations of risk assets such as AI-closely linked tech stocks, high-yield corporate bonds, and cryptocurrencies, whose valuations are at historical highs, face the threat of collapse. In the view of some analysts, energy inflation pressure under the surge in prices of crude oil and a series of refined products such as diesel is the core driving force behind the surge in long-dated Treasury yields, but this round of Treasury yield spikes can no longer be explained by soaring oil prices alonesince the end of August, the 10-year real yield has risen 44 basis points, even at one point covering the nominal increase, showing that long-term funding costs are undergoing a deeper repricingnamely, AI construction first drives demand for financing, electricity, and equipment, while the productivity dividend takes time to materialize; at the same time, fiscal authorities and corporations compete for funds, and investors demand higher term risk compensation, jointly pushing up long-term capital costs. This surge in Treasury yields can be said to have further spilled over into global stocks and bonds. The construction of AI data centers is rapidly driving demand for financing, electricity, and equipment, while the productivity dividend sufficient to ease supply constraints still takes time to materialize; at the same time, large-scale fiscal financing and corporate capital expenditure compete for funds, and long-term bond investors also demand higher risk compensation, keeping long-end rates under sustained pressure. As this "anchor of global asset pricing" moves higher, the impact transmits from the Treasury market to the global financing system: future earnings of tech stocks face a higher discount rate, the opportunity cost of holding gold increases, and data center projects relying on long-term financing must also achieve higher and more stable cash returns to cover rising capital costs.