Former Dallas Fed President: Markets' expectations of the Federal Reserve's interest rate hikes are overly aggressive.

Former Dallas Federal Reserve President Robert Kaplan said the bond market has been overly aggressive in pricing in the U.S. Federal Reserve’s interest rate hike expectations. Kaplan noted that the Fed’s September rate hike was the right decision, a further hike in December could still be a reasonable option, but a pause in October would be appropriate. He added that inflation remains "concerning" both on a monthly and year-over-year basis; when annualized, the monthly inflation figure is even near 3%. Kaplan pointed out that the Fed’s dot plot signals one more rate hike this year, but financial markets have already priced in more than that. As of Thursday morning, market pricing indicates at least three additional rate hikes by June next year. “There’s no doubt that AI infrastructure and applications are booming, and defense spending is also very strong for obvious reasons,” Kaplan said. “But if you look at the auto sector, housing-related businesses, and those serving low- and middle-income consumers, while their performance isn’t terrible, overall they’re quite weak or sluggish. So in my view, the sectors of the economy most sensitive to the federal funds rate are not overheating right now.” (Source: Jin10)