SMBC's Lavorgna expects more Fed hikes after October meeting

what happened

Seeking Alpha reports that SMBC Americas chief economist Joe Lavorgna expects further Federal Reserve rate increases, though he does not anticipate a move at the October meeting. The September producer price index posted its biggest rise since 2022, which he called a troubling sign that inflation is cooling more slowly than many expected. In an interview with CNBC, he said "we've got a boom, it's just not a disinflationary boom."

Lavorgna sees December as the more likely window for the next step. He allows for a 50-basis-point increase if data keeps surprising to the upside, but does not treat that as his base case. The September hike, he argued, gave policymakers room to watch how conditions develop, especially since financial conditions have tightened since then. The ongoing Middle East crisis, he added, will also keep inflation elevated.

He points to solid demand, with nominal GDP expected to grow more than 6% in both the second and third quarters. He would only turn bearish on the economy if the labor market deteriorated. For now, low hiring and low firing suggest the economy remains on solid footing.

why it matters

For rate markets, this view suggests participants may price in a tighter Fed path through year-end, with December as the key point. Investors would watch upcoming inflation and employment releases for signs of whether this scenario holds. It is the view of a single economist, not a forecast from the central bank.

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