A Fed Rate Hike: Why Do Some Want to Act and Others Prefer to Wait?

After the release of US August CPI data, the market-implied probability of a September rate increase rose to 88.8%.

As markets increased their bets, the Fed’s earlier disagreement was also worth revisiting.

At its July 29 meeting, the Federal Open Market Committee (FOMC) voted 9–3 to leave rates unchanged. Three members wanted an immediate increase of 0.25 percentage points. The central question was whether existing policy could keep inflation moving lower, or whether more restraint was needed right away.

Why Do Some Want to Act Now?

Slower inflation does not mean goods have become cheaper. When prices continue to rise, households’ day-to-day spending may increase.

On July 31, Dallas Fed President Lorie Logan said that inflation persistently above target was adding to budget pressures on households and businesses. She believed existing policy was not sufficiently restraining the economy and that inflation might not return to target on its own.

She therefore favoured a small increase sooner, reducing the risk of being forced into a larger move later. In her view, waiting would prolong households’ exposure to rising prices and could make inflation harder to control in the future.

Why Do Others Prefer to Wait?

Rate increases also have costs. New borrowing and refinancing may become more expensive, restraining household consumption and business investment. If inflation is already improving, the need to add further pressure deserves consideration.

Fed Governor Christopher Waller supported leaving rates unchanged at the July meeting. Reflecting on that decision on September 3, he explained that signs of cooling were already visible at the time, so he was willing to observe whether the improvement continued. If it reversed, he would consider an increase.

Logan was not convinced that existing restraint was sufficient. Waller was willing to give the improvement more time to be confirmed.

Can New Data Settle the Debate?

Both sets of remarks preceded the August CPI release. The newly published figures showed monthly core CPI inflation rising from 0.2% to 0.3%, making it harder to confirm a disinflation trend. But one month’s fluctuation was not enough to prove that the improvement had reversed.

The 88.8% figure was a probability priced by interest-rate futures markets. It was not the share of committee members supporting an increase, still less the meeting’s final decision. New data add to the evidence; they cannot be equated directly with the next vote.

What Does This Mean for Gold and Technology Stocks?

Policy expectations affect interest rates, which then pass through to asset prices through different channels.

Gold pays no interest. When real rates rise, the opportunity cost of holding it increases, usually putting pressure on its price. Safe-haven demand and the strength of the dollar also affect its performance.

Technology companies reliant on external financing may cut investment as funding costs rise. For technology stocks, other things being equal, higher rates reduce the present value of future earnings. Ample cash holdings and earnings growth may offset some of that pressure.

The Fed needs to assess how much additional restraint is required to keep inflation cooling. Judging the outlook for gold and technology stocks requires looking at rates, demand and earnings together. A rate increase alone cannot predict whether their prices will rise or fall.