Federal Reserve Governor Paulson stated that the development of artificial intelligence is contributing to inflationary pressures. She emphasized the necessity of returning inflation to the 2% target, which markets interpret as a signal for a hawkish policy stance.
The current federal funds target range is set at 3.75%–4.00%. Projections for 2026 indicate PCE inflation at 3.7% and core PCE at 3.4%, both remaining above the Fed's 2% goal. These figures have fueled expectations for at least one additional rate hike in 2026.
Market sentiment regarding future rate hikes has shifted significantly over the last 24 hours. The probability of two rate hikes has fallen to 48% from 64%, while the likelihood of three hikes has surged to 41.7% from 22%.
Investors are now focused on upcoming CPI and PCE data releases, as well as future commentary from Fed Chair Jerome Powell. The FOMC meeting scheduled for December 2026 is viewed as a critical event for determining the trajectory of monetary policy.
