According to Jinshi, former Federal Reserve regional reserve chairman Kaplan said that if service sector inflation remains stubborn, the Federal Reserve may be forced to raise interest rates three more times and then keep borrowing costs high for longer than many investors expect.
Kaplan said, "I would not be shocked if the Fed raises rates at least a few more times, and if this continues, they may feel the need to take more action." Kaplan said that the chain reaction of fiscal policies such as the post-epidemic stimulus and the Inflation Reduction Act are offsetting the Fed's aggressive monetary tightening. This keeps the employment rate high and consumers still have enough cash to spend safely in the face of high inflation, especially in services.
“I strongly favor a pause (in rate hikes) to assess these cross-effects,” Kaplan said. “However, as we move past this phase, services inflation will remain strong. If I could have been at the FOMC meetings in July and September, I would also have started to think we had to do more.”
