Roger Ferguson, the former Fed Vice Chair and former TIAA CEO, spent a CNBC segment Thursday morning telling viewers that the conversation around the Federal Reserve has flipped. Months ago, traders were still pricing in cuts. Now Ferguson says “the entire tone around the FED has changed quite dramatically in the last several months from holding still, perhaps even talk of rate cuts to now… a near certainty of at least one rate increase sometime this year.” That is a striking line from someone who actually sat on the Board.
The data backs him up. Core PCE, the Fed’s preferred inflation gauge, came in at 3.41% year over year in May 2026 and has drifted higher from 2.97% as recently as December 2025. Headline PCE is worse, running at 4.07%, dragged up by an energy index that is 24.26% higher year over year. Ferguson framed the energy story as something that should fade now that the Iran conflict is over and oil is back near pre-war levels, but he warned the path lower will be slow. “Headline inflation should gradually recede. But I emphasize the word gradual,” he said, citing a shortage of tankers and imbalances around fertilizer.
The dot plot turned hawkish in plain sight
The clearest evidence of the regime change is the Fed’s own Summary of Economic Projections. According to Ferguson, nine of 18 officials now expect rate increases this year, and six expect two. That committee is bracing for the possibility that inflation never quite gets back to the 2% target without help.
Markets seem to half-believe it. The Treasury curve is doing something unusual. Short rates have crept higher through June, with the 1-year yield climbing from 3.83% on June 1 to 3.99% on June 24, while the long end has eased, with the 30-year falling from 4.99% to 4.86% down over the same span. The 10Y-2Y spread sits at 0.30, positive and stable, which is bond-market shorthand for “we believe the Fed can hike without breaking anything.”
A friendlier Fed for the banks
The other half of Ferguson’s argument is about supervision. Big banks sailed through this year’s stress tests, helped by higher rates fattening net interest margins and by sturdier deposits. He went further, saying “The FED itself is becoming what I would describe as somewhat more bank friendly… intends to reduce its supervisory staff by roughly 25 to 30% and some other changes underway.” The new chair has also announced five policy task forces. That signals an organizational reset to go with the lighter regulatory touch. You can read the Fed’s own write-up of this year’s stress test results on the Board of Governors site.
The capital-intensive era and why GDP keeps surprising
Ferguson’s most interesting framing was structural. “We are in an era that’s moved from sort of capital light to capital intensive. 30 or 40% of the growth of GDP over the last couple of quarters can be attributed to AI build out,” he said. The BEA data is consistent with that. Gross private investment rose 7.9% in 2026Q1, well ahead of the 2.1% headline GDP print, while personal consumption sagged to 0.5%. The consumer is napping. The hyperscalers are not.
This matters for rates. An economy where capex is doing the heavy work tends to support real yields, because capital has to be priced. Add tariff pass-through, sticky services inflation at 3.76% year over year, and defense spending, and you get an environment where the Fed has cover to lean hawkish without choking growth.
What to watch next
Ferguson’s bottom line is that timing is the only real question. The next core PCE print is the swing factor. Ferguson noted core PCE at 3.3%, with the market expecting 3.5%, and any upside surprise tightens the window for the first hike. Watch the September meeting, watch the dot plot revisions, and watch whether services inflation keeps grinding higher. If it does, the rate-cut era really is over.
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