CME Fedwatch projects one quarter-point in June, then what?
 

Fed’s Hammack Says She Prefers Slightly More Restrictive Rates

Bloomberg reports Fed’s Hammack Says She Prefers Slightly More Restrictive Rates

Federal Reserve Bank of Cleveland President Beth Hammack said she would prefer interest rates to be slightly more restrictive to keep putting pressure on inflation, which is still running too high.

“Right now, we’ve got policy that’s right around neutral,” Hammack said Friday during an event in Cincinnati. “I would prefer to be on a slightly more restrictive stance to help continue to put pressure” on the inflation side of the central bank’s mandate, she said.

Fed officials delivered a third consecutive rate reduction earlier this week, but a large group of regional bank presidents signaled they opposed the cut. Two officials, Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid, officially dissented against the move, saying they preferred to leave rates unchanged. And six policymakers penciled in rate projections suggesting they also opposed a cut.

Hammack didn’t vote on monetary policy decisions this year but will vote in 2026. Asked if she supported this week’s rate reduction, she didn’t directly answer the question but said it was a “complicated decision” since officials are facing pressure on both sides of their mandate.

Fed Dot Plot
 

The Fed’s “Dot Plot” from December 2025 Economic Projections ranges from 2.0 to 2.25 percent on the low end, and 3.75 to 4.0 percent on the high end.

Since the current rate is 3.5 to 3.75 percent, three voting members forecast a quarter-point hike by December of 2026.

Another four voting members say that the Fed is done with cuts (or any further cuts will be taken back).

The Median projection is 3.4 percent. That would be approximately an eighth-point cut from here.

CME Fedwatch December 2026
 

December 2026 Dot Plot vs December CME Fedwatch

• Fed: One Cut, but Small ~ 1/8 Point
• Market Betters: Two Full Quarter-Point Cuts

There is so much data coming by the FOMC January 28 meeting that all of this is quite speculative.

But we can say it’s going to be a tradeoff between inflation and jobs.

For discussion, please see Powell Blames Tariffs for Inflation, Says Job Growth Is Negative

In the press conference, Powell blamed tariffs and said the BLS overestimated jobs.

On December 8, I commented Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible

Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.

I expect a rise in the Health Care weight in the PCE. I also expect a net 1.5 percentage point increase in PCE inflation in 2026 due to health care.

These estimates stem from health care price hikes across the board (Medicare and corporate plans), not counting the huge ACA impacts.

The Fed’s PCE inflation target is 2.0 percent. If I am in the ballpark, health care alone rates to take up 1.5 percentage points of that target, again, not counting Obamacare!

Unless jobs collapse, and they easily can, the Fed is going to struggle to justify rate cuts. And if they do cut, the most likely reason will be jobs. It’s not a good place for the Fed.

Click above link for details and the health care math.

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