Former Fed Vice Chair Predicts 2 Rate Hikes After Fed “Missed the Inflation Target for Roughly Five Years”
Roger Ferguson says the Fed has missed its inflation target for roughly five years, and he thinks the consequences of continued inaction could be worse than markets expect.
Former Federal Reserve Vice Chairman Roger Ferguson expects two interest rate hikes across the rest of 2026 and early 2027, warning that persistent inflation could damage the central bank’s credibility if officials fail to act. His forecast is more hawkish than those of observers expecting only one increase.
Five Years of Inflation Misses Put Fed’s Credibility at Risk
“Inflation has been sticky for too long. They’ve missed the inflation target for roughly five years,“ he said, pointing to core CPI around 2.5% or higher. Five years of overshoot sets a bad track record.
The underlying inflation data supports his concern. Core PCE, the Fed’s preferred gauge, sat at an index value of 130.66 in July 2026, the high in the supplied series and in the 91.7 percentile of recent readings. The Fed’s 2% inflation target remains its official yardstick.
“If inflation does not improve, and I don’t think it’s going to improve significantly enough, they should confront the reality and be ready to move rates. Otherwise, there’s a real possibility of some loss of credibility,“ Ferguson said.
Interest Rates Remain the Fed’s Best Tool for Inflation
Federal Reserve Chair Kevin Warsh has hinted at policy tools beyond interest rates, including balance sheet adjustments. Ferguson pushed back on how much that talk buys the new chair. “The tried and tested tool is only one, and it’s called interest rates. One can hint at other tools like moving the balance sheet, but the possibility of that actually having the desired impact is not high,“ he said.
Treasury Intervention Could Make Bond Signals Harder to Read
Ferguson also flagged a complication for a chair who has said he wants market pricing to inform policy. “The other challenge is that Warsh has said he wants the market to give signals, and we’ve had Treasury interfering in the market in a way that may be making those signals harder to read,“ he said.
On August 27, 2026, the 10-year yield was 4.67%, and the 30-year was 5.19%, with the 30-year touching 5.31% on August 17. The 10Y-2Y spread is a positive 0.47%, up 34.3% from a month ago. Whether those moves reflect growth expectations, term premium, or Treasury issuance dynamics is precisely what Ferguson says is now harder to disentangle.
Ferguson Expects 2 Hikes as Other Forecasters See Less Tightening
The Fed’s last policy vote produced three dissents, and he acknowledged that many others expect maybe one hike. “I’m expecting two rate hikes over the course of the rest of this year and early next year. I’ve seen lots of folks that are expecting maybe one, but I don’t think sitting still is going to end up being good for them or good for the economy,” he said.
Ferguson’s hawkish call runs counter to a market leaning the other way. SpotGamma’s Brent Kochuba said on August 26 that options positioning had flipped from betting on higher rates to front-running cuts, visible in bullish calls on gold and Bitcoin. Principal’s Seema Shah and JPMorgan Private Bank’s Stephen Parker have both expected Warsh to avoid September forward guidance while emphasizing inflation commitment. Mohamed El-Erian has argued peak inflation is behind us. Ferguson is the hawkish outlier in that lineup.
Key Takeaways
Ferguson expects two rate hikes because he doubts inflation will improve enough without further tightening. His warning is that continued inaction could weaken confidence in the Fed’s inflation commitment. Investors should watch incoming inflation and employment data, alongside committee votes, for signs that his hawkish forecast is gaining support.
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Thomas Richmond is a financial writer and content strategist with 5+ years of experience covering stocks and financial markets. He has published over 250 articles focused on individual stock analysis, helping investors better understand business fundamentals, stock valuations, and long-term opportunities.
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