Playback speed×Share postShare post at current timeShare from 0:000:00/434Mahedy Sees One Fed Rate Hike in December, If Inflation Doesn’t Behave More Could Come Fast CEO of Access/Macro, former chief of staff to SF Fed chief Daly, sees “a lot of discord” within FOMC, worries that Fed collegiality could become rupturedKathleen HaysOct 09, 2026434ShareTranscriptTim Mahedy is the CEO and Chief Economist at business consultancy Access/Macro drawing on his work a senior economist at KPMG, and prior to that as Chief of Staff to SF Fed President Mary Daly and a forecaster for NY Fed President John Williams to do research for corporate boards across the country. He joins me shortly after the Fed has just released the minutes of its September meeting saying it looks like the just-released minutes “<were> all over the place.”He is struck by the move from a 9–3 FOMC decision to hold rates steady at the July FOMC meeting to the unanimous rate increase it has just done now in September. “You know honestly it’s the July description of inflation in different words.” In his view, the minutes’ description of inflation changed little between those meetings, making the policy reversal difficult to explain through the data alone.Tim suggests that internal FOMC dynamics may have contributed to this policy unanimity, rather than a clearly worsening inflation outlook. His concern is that rate hikes intended to protect inflation credibility could hit a labor market that is less resilient than it appears. As he puts it, “it makes me think there’s other things going on besides inflation.”
For now, he does not expect a rapid move back to the Fed’s 2% inflation target but instead “a stalling of inflation like we’ve seen the last two years.””Inflation is probably not going to cool. That <cooling> seems unlikely. But if it stalls out, I think we get a December hike,” Tim predicts. But if it starts to show real pressure…maybe we get into summer <with rate hikes>…But it’s an interesting time to be doing this. I just don’t see the inflation story they are looking at.”He also sees a world that “ a world, maybe even a likely world, where the Fed will be raising interest rates, even if inflation was at 2%.””There’s the camp of inflation-concerned people like (Cleveland Fed president Beth) Hammach and all the folks you just mentioned, who are like we got to raise because inflation’s a problem. We’re going to finally do something about it,” Tim says. “And then there’s people like (Fed chair) Warsh who are like, hey, actually AI is changing the world and fundamentals are getting better. So we’ve got to raise anyways.”On the question of what the Fed will do on rates this year, and how this will feed into the recent selloff in bonds and where that goes next, Tim adds what he sees as a large and growing force: “a lot of discord on the Fed, and I think it’s leading uncertainty”… ”And we can see that in financial markets….”
”Add to this to Fed Chair Kevin Warsh’s previous speech at the Kansas City’s Fed Jackson Hole… where he had that speech and all of a sudden we’re like, oh, he maybe he’s going to hike.”Tim also cites Warsh-led planned or proposed changes in Fed communication to financial markets, that might “eventually taking away its forward guidance in some way…if it’s taking the rate forecast in SEPs, reducing the <number of FOMC meetings or redacting some of the > minutes or taking them away, all these things are on the table. ” Tim expects these actions will push up rates even more.”And I think the politics on the Fed and the discount, discord inside the Fed will absolutely drive that when it starts leaking out.” And so when you look at those folks and you look at what they’re saying versus what Warsh is saying, there’s a gap there and there doesn’t have to be a gap. They’re choosing to make a gap, right. And they’re choosing to continue on with some of the forward guidance
And they may be polite for now, but if this becomes a real pressure cooker right then I think there’s a world in which there is a lot more direct, (and it will come through the regional Fed president speeches to the public) it will be a lot more direct-challenging of things, and we may not be far away from that kind of depends on what goes on over the next six months.So dive in and hear why Tim says his baseline forecast is for the Fed to do one rate hike in December “But I don’t think it’s binary. I don’t think it’s going to be like one in December, one in March, one in June.”Spoiler alert: He says if the Fed has to hike more I think it’s going to be like, it’s because we missed it and we’re raising and we’re going to get a lot of front loaded hikes early next year. So the baseline is no hikes in 2027. But if it’s coming it’s coming for a reason and it’s going to come hard and fast
Confused initial reactions to Fed’s minutes 00:01:27:15 I think this is a very difficult time to be doing this. You know, what’s interesting is I know the minutes came out and then the headlines came out and I was actually doing another presentation as it was coming out. And I was kind of watching my inbox with one eye and it was like Fed says… Fed sounds dovish, Fed sounds not dovish, Fed sounds hawkish…
Compare July minutes to September…00:01:50:10
It was like all over the place. I’m like, well, this is kind of the world we live in now right where we don’t. And maybe the world wants, but we’re not quite sure what’s going on. So then when I got off that call, when I said, okay, what does this look like relative to the to the July minutes?
In July was the ‘future’ September? 00:02:04:00
That’s always my thought. Like, where do we go? How did the inflation situation change? You know honestly it’s the July description of inflation is different words. Well not always but it sounds very similar to the September. So it’s a little bit confusing because you’re looking at it and going wait a minute. If I see a 3 to 9 decision to keep rate steady in July, three people wanted up, nine people held flat and then up unanimous, you know, 12 complete flip of nine people in September to raise rates, which changed in inflation, which didn’t show up in the minutes other than the only thing you can really look at is it says like, okay, well, we you know, in the July minutes, it says, well, we think rates inflation is going to ease in the future. I guess the future was September. But like I don’t know, it’s very it’s confusing to me and it makes me think there’s other things going on besides inflation
Policy asymmetry means more concern with surprise increases 00:03:21:04
I think it’s asymmetric <Fed reaction to inflation data>. I think the most likely outcome is that we get a stalling of inflation like we’ve seen the last two years. And in that sense, no it won’t. If all of a sudden the inflation data comes out hotter and we see continued upward pressure on inflation, which is not really what I expect over the remainder of the year, then I think it would cause them to change
The question really is what surprises we get 00:03:42:09
But it’s it’s not the same thing. Right. Inflation is probably not going to cool. That seems unlikely. But if it stalls out, I think we get a December hike. If it starts to show real pressure, you know, maybe we get into summer. Probably not in October. Let’s get December hike and then maybe even some hikes into next year. But it’s an interesting time to be doing this. I just again, I don’t see the inflation story that they’re looking at
Inflation revisions mute inflation 00:04:05:23
Well you know I was going back. So we had some revisions to the data last week. Right. So there was an issue in the data with how they were monitoring, how they were tracking pricing for financial services. It was basically it was being boosted by stock prices the way they were calculated. So the BEA made adjustments and it dropped inflation down to about a year-over-year core PC to 3%
Now…not so different from a year ago 00:04:28:01
Well, guess where it was last year? 2.2.8 2.9%. So okay it’s a little bit higher. And by the way that showed up in the minutes. There’s a whole line in the minutes about that adjustment. And then I’m expecting it to be a downward movement on inflation. But we’re not that much different than we were in 2024 and 2025
Inflation? Was much less than expected! Given events 00:04:46:24
And that’s in context of think of all the stuff that’s happened this year. Think of all the stops and starts in the Iran war and conflict. The more trade, more trade wars. I mean, there should have been a lot more inflation than there was. So if you think about it like that, where you put it in context, in the counterfactual, it’s actually could be seen as a flat or even disinflationary story. We should have seen a lot more than we got. And we did. And so that’s where I look at and go, well, if it flatlined, I still don’t necessarily see what it is they’re looking at. I think there may have been some politics going on at this meeting, not politics with Trump, but politics inside the FOMC that caused this and that. The 9 to 3 switch to 12 to. Oh is my biggest indicator of that
Well, you know, it is the end all, be all. It’s the closest thing we have, the five year expectations. If some people argue three year expectations like the New York Fed survey, but anything over a year is the closest thing we have to assessing central bank credibility. So in that sense, it’s the whole ball game, right. Like, you know, that’s the whole part of the of monetary policy is remaining credible. And so we’ve seen a little bit of upward drift and then down and then up. And so but they remain quote unquote well anchored as the Led likes to say <think?>. Now the one year expectations, those move up and down a lot. They tend to follow energy prices. And so I had a 2.5 hour car ride once with Loretta Mester coming back from Richmond, going to D.C. with and Mary <Daly>. I just sat and I sat in the front and listened to the talk. And she has always been somewhat of an inflation hawk. You know, that was true behind closed doors in the car ride up in Virginia. And so I would expect right now she’s a little bit uncomfortable. And I agree with her assessment that that is concerning
Why do expectations remain ANCHORED? 00:07:35:17
That is in some ways, I think, interesting. It hasn’t already happened. I mean, we’re five years into inflation being above target with no sign of it coming down to two. Definitely not in 2026, probably not in 2027, maybe in 2028. And so like that’s like eight years, 7 or 8 years with inflation above target. That should re-form expectations
And it’s not doing that. Not yet. But it’s one of those things where like once expectations become unmoored, it’s not like they’re just going to tick up. And it’s going to become on board and hard to bring back down. So it’s and we’re not quite sure where that is. So I think it’s not there yet. The longer run expectations aren’t there yet. But we should have a lot of questions on if we’re getting really close to the point in which they will start to drift up
Worried about what lies ahead… 00:09:07:18
Right. You hit the nail on the head. I mean, they’re worried about what’s coming. Right. So I think in that sense, what they’re doing makes sense because it’s it’s forward looking. I think what’s confusing is the way that they’re they mix the time periods of inflation. When they talk about it, they’re saying, oh it’s a problem now. Well it is above target
A reassessment of the shocking impact of a sequence of shocks 00:09:24:24
But that’s not different than it’s been true for five plus years now. And it’s not that that much worse than it was last fall. What they’re talking about is uncertainty about the future and future shocks. And this is where I think they are correct. Now, it’s interesting about this though. We’ve lived through these now. And, you know, think back to last year when we’re talking about oh tariffs as a one time shock. I mean one time shock is the new transitory right. Remember we were all saying transitory. Now it’s one time shock. Well this there’s one time shock and then one time shock and one time shocks. It’s a sequence of shocks. And I think the Fed has woken up to that. And those sequence of shocks have an impact. What’s. And they will have an impact into the future
‘You can’t touch this’ meets ‘you must control that’ 00:10:00:20
What’s hard about this though is that the Fed can’t do anything about that. You can if you look at inflation driven by supply factors. There’s a great series by my buddy Adam Shapiro at the San Francisco Fed. With supply and demand inflation. It breaks out core piece by supply factors and demand and factors. And the supply factors have been elevated for a while. Fed can’t do anything about that with monetary policy. I do think about that. It can control the demand side of it. Well, think about it this way. Those things add up. So if the whole thing is flat or even picking up, you have to kind of knock at the knees at one of those things. Well, if it can’t control supply, it has to knock down demand
Fundamentally shifting views at the Fed 00:10:35:13
Warsh said this at the press conference. He didn’t say demand destruction, but he basically said demand destruction when he was going to attack other areas of inflation. That’s consumer spending. That’s demand for goods and services. So there’s now we’re going from an environment of, hey, we want to like ride this thing slowly, let the plane land. These shocks are going to whittle out to I don’t know… if we keep getting shocks…Maybe we have to start causing some damage in other places. And so that’s the piece where it’s like there maybe they’re waking up to these shocks and I think they will be inflationary. But there’s a real risk and cost to the rest of the economy. And it sounds like they may even be acknowledging that now
You know it is. Yes, a little bit. But you know, you had some recent ones on central Bank central that were really interesting. I think your last three guests all had some version of it was a mistake. The cuts were a mistake and. Yeah. Fair enough. I mean, I think there’s
Fed’s priorities are confusing; are they changing? 00:12:15:21
Yeah. Right. They were. And I think that’s a little bit of what’s what was acknowledged both in September at the press conference and then in the minutes. So I kind of like saying, yeah, okay, maybe we missed the boat on this. I do I do worry that we’re getting to a place where we’re, we’re not quite sure what we’re assessing. And by we’re, I mean the FOMC, they’re saying like, okay, we’ve got these two sides of the mandate and we’ve got inflation over here. And we talk about inflation. We cut it in different ways. And this is you know it’s confusing as to what they think is driving it or what they’re worried about. And then we talk about the employment situation, which you’re right < is ‘good’>
Did the Fed overreact to job market dynamics? 00:12:55:13
The cuts in 2024 and 2025 were both preceded by massive revisions in payroll job gains, downward revisions. And then people freaked out. You were probably there in Jackson Hole. And then people like, oh my gosh, this is freaking out. Like, this is whatever. And then they cut and they cut and they cut. This year it’s different. They’re saying, hey, wait a minute
The long rates actually trended down over the last 12 months and now it’s low. We got low jobs growth, but we’re not maximum employment. Right. We’re at a good level of employment. The thing about this is in our models, this has always been a very hard thing to understand. It’s like, okay, you would always kind of think, well what’s NAIRU (the non accelerating rate of unemployment)
Well that’s kind of like when you got a lowest number and inflation isn’t that bad. Well that’s hard to assess right now. And so it’s difficult to kind of see the health of the labor market. And then you’ve got all the lack of dynamism that’s going on with low hiring rates and low firing rates. And you’re in this world where I, you know, and the breakeven jobs rate, the rate of job gains needed every month to keep the unemployment rate constant. Right. We get people coming to the labor market every month. You have less people coming in because slower population growth, less immigration. That means you need less new jobs. Well, that could be there could be months now where we get a negative payroll numbers to get a contraction in jobs, and the unemployment rate doesn’t move. That would have been think about what was going on
Not all full employment conditions are created equal 00:14:16:23
You’ve been doing this a long time. That was going on in the 20 tens or 2000. You’d freak out, right? If all of a sudden job gains or jobs, we lost jobs in a month. That’s kind of normal now. And so these things make it harder for the fed to assess the health of the labor market, this maximum number. So I look at that I read this and I go, sure, it seems fine now unemployment rate is low, but we know it can go quickly. And that doesn’t really tell me anything in the labor market that isn’t super dynamic. I think it’s I think the labor market is fine, but I don’t think it’s like 2010 to 2018, 2019. No. You know, I don’t like to bet against Yelena… That’s a bad choice. But she’s you know, it’s interesting because even in that, I think that’s revealing, right? Like, what is the Fed’s official measure inflation PCE but it comes out at the end of the month. And we if we’ve been talking a lot about CPI in the last 18 months how do they move together over time? CPI tends to trade 50 bps above PCE usually. But it’s interesting that we’re so focused on this now. And it’s also interesting for a Fed that we’re supposed to be less data dependent. We’re supposed to have less forward guidance. Yelena is not wrong in her assessment. There seems to be a lot of data dependance and so maybe unintentional forward guidance
Not an October hike but maybe not a unanimous decision 00:17:03:16
And so I don’t think it’s going to push them into a rate hike in October. But do I think we could have a split decision because some people get a CPI report that shows some elevated inflation potentially, and then they’re like, yeah, maybe we should be hiking. Like, yeah, I think that’s possible… Could look a lot like July
No. So here’s, here’s here’s the deal. So I teach a course the Pacific Coast Banking School. Every year. It’s a week long course for some for bank executives and bankers on macro. And this year, Bob will love this, I structured the whole course around the Cobb-Douglas production function, because I think it completely explains all of the big stuff in our in our current world, right? Like supply shocks, capital investment, productivity shocks, labor force slowdown, population issues. I mean, it’s all this stuff in the supply side of the economy is being jacked up. And so, you know, that tells you kind of versions of that can tell you where potential growth is, which tells you kind of where rates should be, right, faster potential growth economy’s operating better
Or, you know, the fundamentals are getting stronger, higher rates, economy can absorb higher rates. And so one of the things I’ve been I’ve been tracking on this is I’ve been thinking like, okay, where are we relative to neutral. Right. That’s a big question. And if we just think about the long term like discussion that’s going on with, with the Fed and where what we’ve been using for language between restrictive and accommodative, which are two very popular Fed terms
The progressive entropy of thinking policy is restrictive 00:19:23:14
If we go back 18 months or even a year. You had Powell saying things like, you know, first we were restrictive, very clearly restrictive. We were rates were well above where the equilibrium was. And then we cut rates. And then it was like, okay, maybe they’re restrictive, probably restrictive, but maybe not. And then it was like, okay, we’re really not sure if it’s restrictive or not
Suddenly a look back and far differently categorized ‘past’ 00:19:43:12
And then Warsh said something that I think kind of showed up in the minutes and in a way like, we’re accommodating. Remember this, you were in the room, right? He’s like, oh, we’re no longer accommodative. I need to remove accommodations. What he said, that’s like a sea change in thinking. And it has to get at this underlying structural changes in the economy
Two worlds...same prescription…for now? 00:20:02:07
This is the production function and potential growth going up. There is a world this isn’t getting talked about enough. There is a world, maybe even a likely world where the Fed will be raising interest rates, even if inflation was at 2%. I think this piece is getting missed. There’s two there’s two things happening with rate increases. There’s the camp of inflation, concerned people like Hammack and all the folks you just mentioned who are like we got to raise because inflation’s a problem. We’re going to finally do something about it… And then there’s people like Warsh who are like, hey, actually AI is changing the world and fundamentals are getting better. So we’ve got to raise anyways
Well, it’s going to tie this back to the question. I didn’t answer that. You asked me about rates. So yeah, well, I’ll try them together because I forgot to answer that I was going somewhere and I sidetracked. Welcome to my life. And so with all of these fundamentals increasing, if you look at the long term... So, I think there’s a lot of discord on the fed
And I think it’s leading to uncertainty. And we can see that in financial markets. So if you can decompose any yield, any market yield into two things future rate expectations. So what people think rates are going to be in the future. And the term premium, which I call the chaos factor, basically the cost of uncertainty, like the things the money I want to be compensated for because the world is uncertain. Well, unsurprisingly, if you do that decomposition, you’ll see that short term rate expectations spiked during the Fed hiking of the 2022, 2021, 2022, 2023. Right? So that shoots up the ten year goes up with it, and then we got cuts in those in the in rates over the last two falls. That lowered rate expectations. But the ten-year basically didn’t move over that period of time
Uncertainty raises the term premium 00:22:37:14
It’s because the term premium was rising. It’s because people wanted more. The world is becoming more and more uncertain. This is a structural change in our economy, more and more uncertain, and people wanted to be compensated for that. And so you had these kind of offsetting forces that were keeping the yields kind of flat, more or less overtime
Rising term premium and rising rate expectations 00:22:53:06
And then in August, Jackson Hole, where he had that speech and all of a sudden were like, oh, he maybe he’s going to hike. And then all of a sudden both of those things start moving in the same direction. So you had term premium rising and you had rate expectations going up, which is one of the big reasons, not the only reason the stuff with the federal debt is also happening and Bessent’s inability to kind of quell that
Uncertainty and dissent at the Fed 00:23:14:10
But that’s a big reason why the rates have taken off over the last two months. Now, if you add in what I think is to your question, a lot of uncertainty on the FOMC, you’ve got the reduction forward guidance version, even submitting SEPS, you know, forecasts and people don’t know what he’s thinking. There’s dissent John Williams is out saying I don’t know maybe we’re going to do one more and that’s it like kind of thing
More uncertainty and less hand-holding by the Fed 00:23:37:14
Then all of a sudden that increases the term premium more. So when you when you increase when you increase your future expectations of inflation, you’re increasing that kind of long-term rate forecast that’s in your decomposition. But when you’re increasing uncertainty, when your forecast becomes less certain, that increases. The term premium. And uncertainty is everywhere today. So I think to the extent that the Fed feeds that with its communication style and with its taking away, eventually taking away a forward guidance in some way, you know, if it’s taking away the rate forecast in the SEPs, reducing the minutes or taking them away, all these things are on the table. All of that is going to cause more determined to continue to rise, which going to push rates up. And I think the politics on the Fed and the discontent discord inside the Fed will absolutely drive that when it starts leaking out
The Fed tradition bound/conservative 00:25:07:08
It’s really hard. So the Fed, for those of you who have never worked at the Federal Reserve, it is built a lot like our society. It works really well. It’s incredibly complex. There’s all these processes and systems and things that exist, and norms and culture and history all keep them all, keep it taped together. And so, sure, there’s a there’s documents upon documents and rulebooks around rulebooks. The Fed’s very conservative institution. But the people in the fed really keep the thing churning. There’s all kinds of things that come up. It is the process is operations, FOMC cycles. And so one of the things that has been incredibly important is the continuation of that institutional knowledge. And Warsh kind of comes in and said, well, I’m going to kind of like start dropping little bits of dynamite here and they’re taking it out on the staff a little bit, introducing task forces that are now assessing things that the FOMC has recently decided upon, you know, and that trickles through not just in DC but to the regional Feds right through their through their heads
Staff not happy with Warsh’s moves on task forces 00:26:07:13
And so you can see pieces of the discontent. I mean, Nick has had that article about Waller politely, I guess politely calling out worship dinner. Right. You tell me who’s on these task forces. I’ll tell you what they’re going to say. That’s Fed speak for. Screw you, buddy, we just decided on this. And you, you’re priming the pump here on the on what’s going to come out of these
Leadership without followership…interesting 00:26:26:23
So I think there’s pieces of that in there. Now, I’ve also worked for some of these folks where I know them. I used to go to the FOMC meetings. I didn’t go to the meeting. I travel with Mary, so I’d meet these folks and I’ve worked for some. John is John’s brilliant, but he’s also, he’s a true Fed Lifer. And it is nobody pushes John Williams around when John Williams thinks something, John Williams thinks something. You got to come with facts and arguments and models or you’re lost. You know, Mary is very similar in that way. I don’t know Jay very well, but he’s he leaned very heavily on John. So there is a contingent inside the FOMC that is John Williams connected. You know and I think there’s another big component of that. And so when you look at those folks and you look at what they’re saying versus what Warsh is saying, there’s a gap there and there isn’t have to be a gap
So far it is dissent suppressed 00:27:20:12
They’re choosing to make a gap, right. And they’re choosing to continue on with some of the forward guidance that Warsh is kind of against. And so that to me, those are the signals, that they don’t necessarily agree with how this is going. And they may be polite for now, but if this becomes a real pressure cooker right then I think there’s a world in which there is a lot more direct… (and it will come through the regional Fed president speeches to the public) it will be a lot more direct, challenging of things, and we may not be far away from that kind of depends on what goes on over the next six months
Fed rate hikes…one and done or many? 00:28:33:07
I think we’ll get one in December and hold. That’s our baseline. I think we get one in December and that’s it. Especially given what the inflation, how much that revision brought inflation data down. But I don’t think it’s binary. I don’t think it’s going to be like one in December, one in March, one in June. I think it’s going to be like, if we’re raising, it’s because we missed it and we’re raising and we’re going to get a lot of front loaded hikes early next year. So the baseline is no hikes in 2027. But if it’s coming it’s coming for a reason and it’s going to come hard and fast
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Tim MahedyBefore starting Access/Macro Tim was a senior economist at KPMG where he regularly discussed the economic outlook with executives, Boards, and senior leaders at companies both large and small. He also served as the chief of staff to the President and Chief Operating Officer at the Federal Reserve Bank of San Francisco - a role that gave him unique insight into how to build strategies and solutions that create impact at the organizational level
Tim has co-authored articles published by the FRBSF, IMF, and Bloomberg outlets, conducted economic forecasting at the IMF and the Federal Reserve, and has gained a reputation for synthesizing complex economic developments for business and community leaders. His research covers a wide range of topics, but he specializes in inflation and monetary policy. His work is regularly cited in the press and remains influential with policymakers
Prior to joining the FRBSF, he was an economist at Bloomberg LP where he appeared on television and radio to discuss economic conditions and the outlook. He has also worked as an economist and analyst at the International Monetary Fund and Citibank in New York.Tim has a B.A. in international affairs and a B.S. in economics from George Washington University and an M.A. in Economics from San Diego State University. He is fluent in both Spanish and Portuguese
