Two Fed Officials Just Called for More Rate Hikes, Starting Soon
Two Fed officials broke from the crowd within 48 hours of the FOMC hold, and what they signaled about timing puts SPY's year-to-date gains directly in the crosshairs.
Two days after the Federal Reserve held rates, Dallas Fed President Lorie Logan and St. Louis Fed President Alberto Musalem said the hiking cycle is not over. On October 30, 2026, Logan said the FOMC needs at least two more 25-basis-point rate increases. A basis point is one hundredth of a percentage point. Musalem said, “additional firming of monetary policy will be necessary, and soon.”
The State Street SPDR S&P 500 ETF Trust (NYSEARCA:SPY) fell 1.77% to $755.78 that day. That drop, tied to AI concerns, left the Nasdaq at its lowest level in three months.
If you own the fund, the Fed now adds a second drag on top of the AI selloff. SPY is still up 10.83% year to date, so the open question is whether that gain can hold up while the Fed tries to tighten financial conditions.
What Logan and Musalem Actually Signaled
Logan set a destination of at least two more increases. After that, she said, “it would make sense in my view to pause and examine economic and financial developments.” She did not name a meeting or a date.
Musalem supplied the timing. He argued that “incremental adjustments made earlier are usually less disruptive than larger and abrupt actions taken later.” Logan votes on the FOMC in 2026 and Musalem does not, so her view counts directly when the committee decides.
The committee held the target range at 3.75% to 4% by a 10-2 vote, with Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissenting in favor of a hike. Logan described the decision as one where the FOMC “skipped an increase.” She noted that skipping a meeting “does not change the monetary policy destination.” In her view, October was a pause inside a hiking cycle.
Richmond Fed President Tom Barkin called the direction “pretty straightforward,” but added: “The question, though, is pace… We signaled a gradual approach.” The split, then, is over speed.
Data Behind the Hawks
September PCE inflation ran 3.6% year over year, well above the Fed’s 2% goal. Headline prices rose 0.5% in that month alone. Logan said core PCE inflation was “3.1 percent over the 12 months through September” and that the Fed has missed its goal for nearly six years, which she called “unacceptable.”
The economy gives the Fed little reason to wait. Real GDP grew at a 3.4% annual rate in the third quarter, and the Employment Cost Index, a measure of wages and benefits, rose 3.4% year over year. Logan said unemployment sits just above 4%.
What Markets Have Already Priced
The CME Group FedWatch tool put the odds of a December quarter-point hike at about 76%. A prediction market agreed, pricing a December quarter-point hike at 70 cents versus 29 cents for no change and 3 cents for a bigger move.
The two-year Treasury yield fell to 4.56% from 4.61% even as Logan and Musalem spoke. Markets have largely priced in one December hike. The risk for stocks lies between that one move and Logan’s call for at least two before any pause.
How Tighter Policy Hits SPY
Musalem said financial conditions “remain accommodative,” meaning the Fed wants them tighter. In practice, that brings lower stock valuations, higher borrowing costs, or both.
A higher discount rate, the rate investors use to value future profits, weighs most on highly valued growth stocks. SPY’s three largest holdings, all technology giants tied to AI, carried weights of 7.58%, 6.66% and 4.91% as of March 2026. The AI selloff and a hawkish Fed are separate pressures, but they hit the same stocks (riding an AI-led market while planning the exit is the whole subject of our free bubble handbook).
What a Longer Hiking Cycle Means for SPY Holders
For long-term holders, the background still has support. Growth at a 3.4% rate supports earnings, and a hiking cycle with a stated pause point is easier for a broad index fund to absorb than an open-ended one.
The Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) offers a useful comparison in a rate-hike environment. Because it gives every company the same weight, it depends less on megacap growth names exposed to both AI concerns and a higher discount rate.
The midterm elections on November 3 come first. The real test is the FOMC meeting on December 8-9. If the Fed hikes, signals a second increase, and the two-year yield moves back above 4.61%, markets are pricing in Logan’s path, and SPY likely trades below its $755.78 close.
Contact [email protected] for any questions or corrections.
Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
