US economic and inflation data challenge Warsh's 'not yet overheated' judgment, economists wary of further rate hike risks.

October 30: U.S. third-quarter real GDP grew at an annualized quarter-over-quarter rate of 3.4%, exceeding market expectations, with consumer spending and business equipment investment rising 3.8% and 20.9%, respectively. The September PCE price index rose 3.6% year-over-year, up from 3.4% in August. Strong growth and persistent inflation pose a challenge to Fed Chair Warsh's judgment that the economy is not yet overheating.

The Fed this week held interest rates at 3.75% to 4% by a 10-2 vote. Warsh believes that technological advances such as AI may boost productivity, and that rising inflation pressure cannot be inferred merely from faster growth. As of Friday, market pricing indicated an approximately 80% probability of a 25-basis-point rate hike in December.

KPMG chief economist Diane Swonk believes inflation remains broad-based, especially concentrated in services, which respond slowly to interest rates, and it is unclear whether moderate cooling can resolve its stickiness. She cautioned that tighter financial conditions stem partly from market expectations of further rate hikes and still require actual policy action in response. BNY Investments chief economist Vincent Reinhart expects the Fed will need two more rate hikes, and that with oil prices remaining elevated, there is a risk of additional hikes.