Why One Top Economist Says the Fed’s Inflation Fight Can’t Be Won With Rate Hikes

Wells Fargo chief economist Tom Porcelli is pushing back against market bets on a Federal Reserve (Fed) rate hike, saying he expects the central bank to hold rates through 2026.

His view clashes with a hawkish turn across Wall Street, where several major banks now forecast higher rates. Traders have also sharply lifted their expectations for rate hikes since early summer.

Wall Street Economist Breaks From Market on Rising Fed Hike Bets

The Fed has held its benchmark rate at 3.50% to 3.75% all year. Yet, pricing for tighter policy has climbed.

On Polymarket, the odds of a 2026 hike sit near 55%. They peaked around 78% in late July before easing this month.

CME FedWatch data tell a similar story. A hold leads the September 16 meeting at 55.6%. However, the odds of a hike rise to 59.2% for October and 77.1% by December.

Follow us on X to get the latest news as it happens

The Street has turned hawkish, too. Bank of America (BofA) forecasts three hikes totalling 75 basis points. In addition, Pacific Investment Management Company (PIMCO) has warned that cuts would prove counterproductive.

Kansas City Fed’s Jeffrey Schmid has also argued for higher rates. Three policymakers dissented at the July meeting in favor of an increase.

The Supply Shock Argument

Porcelli disputes the case for action. In an interview with CNBC, he said current inflation stems from tariffs and energy, both of which are supply shocks the Fed cannot address. 

Raising rates would hit growth without curbing those prices, he argued. In his view, 

“Raising rates is not a costless endeavor.”

He pointed to cooling core data. Core Consumer Price Index (CPI) inflation runs near 2.5%, and about 2.2% on a three-month annualized basis. That pace sits close to the Fed’s 2% goal.

Porcelli also noted that core CPI and core Personal Consumption Expenditures (PCE) have diverged.

“In terms of the divergence between CPI and PCE is because the weights are different,” he said.

The September 16 Federal Open Market Committee (FOMC) decision now looms as the next major test. It will show whether Porcelli’s contrarian call or the market’s hawkish drift proves correct.

Subscribe to our YouTube channel to watch leaders and journalists provide expert insights