Fed's Michael Barr backs more rate hikes as PMI hits 5-year high

Fed's Michael Barr backs more rate hikes as PMI hits 5-year high

Wed, September 23, 2026 at 8:14 PM GMT+3 3 min read

Federal Reserve Governor Michael Barr said Wednesday that further interest rate increases will likely be necessary to bring inflation back to the Fed's 2% target, a day after the central bank raised its benchmark rate for the first time in three years.

"In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," Barr said in prepared remarks at a housing affordability conference hosted by the Federal Reserve Bank of Chicago. He described last week's quarter-point increase as an "important action" and said the committee had been "out of position" on rates before making the move.

The Fed raised its policy rate to a target range of 3.75%-4% at last week's meeting, according to Reuters. Among the 18 participants who submitted projections, 16 indicated the Fed would likely require at least one additional hike before year-end, but Reuters noted that Barr's language points to his expecting a minimum of two more increases.

Barr's remarks landed the same morning that S&P Global released flash purchasing managers' index data showing U.S. business activity surging to its fastest pace in more than five years. September's composite PMI reached 58.4, a 62-month high, up from 56.0 in August. The services gauge came in at 58.7, its strongest reading in 59 months, and the manufacturing gauge hit 57.0, a 52-month peak. Values above 50 indicate that activity is expanding.

Price pressures accompanied the growth. According to S&P Global, aggregate input costs climbed to their steepest point since October 2022, with the increase attributed to surging fuel and freight expenses alongside broader wage growth. "Firms' input costs have meanwhile jumped in September at the steepest rate for four years, with fuel and transport costs spiking higher thanks to the rise in oil prices seen during the month, which will add further to the upward pressure on selling prices and inflation in the coming months," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Markets moved sharply in response. Traders now assign a 71% probability to a hike at the Oct. 27-28 FOMC meeting, per the CME FedWatch tool as reported by CNBC. The policy-sensitive 2-year Treasury yield surged by more than 13 basis points, reaching 4.9%.

Earlier this week, two non-voting regional Fed presidents expressed support for additional rate increases. Boston Fed chief Susan Collins said she anticipates one additional rate increase by December, and her St. Louis counterpart Alberto Musalem similarly pointed toward the need for more tightening, as CNBC reported. The prior week's rate decision was unanimous among the 12 FOMC voters.

Barr acknowledged that the economy is expanding at a healthy pace and that hiring conditions remain robust, while cautioning that inflation has yet to show a clear downward trajectory toward the central bank's goal. "Risks to achieving our inflation target have increased, while risks to the labor market have receded," he said.