Nearly All Monetary Rules Say The Fed Should Raise Rates
Quoth the Raven
· QTR’s Fringe Finance
· June 16, 2026 at 18:13
· ⏱ 9 min read
| Read on Substack ↗
Summary
The article argues that nearly all monetary policy rules now recommend a rate hike, contradicting market expectations of a hold, due to accelerating inflation and persistent supply shocks. It highlights a growing split between dovish Fed governors and hawkish regional bank presidents, warning that the Fed risks repeating its 2021 mistake of ignoring rule-based guidance. For markets, this suggests a potential hawkish surprise or prolonged higher rates, but no direct actionable trades are implied.
•CME FedWatch shows 98% probability that the federal funds rate stays unchanged at 3.5–3.75% at the upcoming FOMC meeting.
•Eleven of twelve monetary rule estimates in AIER's report indicate the Fed should raise rates; the original Taylor Rule points to a 5.91% federal funds rate.
•Nominal GDP growth of over 5% in Q1 and strong Q2 forecasts have weakened the case for holding policy steady.
•New Fed Chair Kevin Warsh argues AI-driven productivity could allow lower rates, but the article says current conditions do not support that view.
•Three of four rotating regional bank presidents dissented at the April FOMC meeting against including an easing bias; Cleveland's Beth Hammack and Kansas City's Jeffrey Schmid have warned about inflation risks.
•Inflation in May surpassed 4% for the first time in three years, echoing the 2021 episode when the Fed waited too long to hike while monetary rules recommended higher rates.