MNI INTERVIEW: Lockhart Sees Next Fed Hikes in Dec, Q1

The Federal Reserve is likely to resume tightening in December and again in the first quarter of next year so long as inflation remain elevated within a persistent band, former Federal Reserve Bank of Atlanta President Dennis Lockhart told MNI.

“One hike in December and one in the first quarter of next year is a reasonable working assumption,” Lockhart said in an interview.

That the October FOMC meeting takes place less than a week before the midterm elections is not a stated rationale for staying on hold this week, but some on the committee would likely prefer not to act on the eve of a major election, he said.

“I don’t think this amounts to politicization of the decision process. I just think it’s an instinct not to borrow trouble unnecessarily.”

Conditions also allow a skip, Lockhart said. Inflation is elevated but range-bound, with no recent breakout in either direction and no absolute urgency to act. The steepening of the yield curve is also “likely doing some of the committee’s work for it,” buying officials time to see whether demand softens in rate-sensitive sectors and supply-side pressures ease, he said.

STICKINESS

Lockhart identified second- and third-order effects of higher oil prices as a conspicuous driver of inflation. If reports that the U.S. and Israel plan to strike Iran after the midterms prove true, oil and refined product prices are likely to rise again, he added.

Strong employment and robust consumer demand, which give price-setters room to try to widen margins, along with constrained housing supply, are also contributing to inflationary pressures, as is demand associated with AI-related investment, he said. Overall, “prices are more likely to rise than they are to fall.”

Lockhart pushed back on the view held by some FOMC members that energy-driven price pressures will soon prove transitory and disinflation resume. Sticky high costs passing through corporate supply chains are likely to sustain price levels, even if the measured inflation rate stabilizes, he said.

"Some policymakers have been predicting for several months that particularly energy-related cost pressures would prove transitory. How long do you keep predicting this outcome and betting on it from a policymaking point of view?" Lockhart said. "I'd be more inclined to be cautious and bet on stickiness.”

An upside breakout in inflation, which typically requires more than one month’s data to be convincing, would call for a faster response, he added. Worsening inflation expectations could also trigger action, a risk to which the committee is highly sensitive.

AI BOOM

Fed Chairman Kevin Warsh proclaimed this month that AI will fundamentally change the conduct of monetary policy around the world. Lockhart agreed that productivity gains from the technology will increasingly become a consideration.

He said policymakers will consider its effects in conjunction with other accelerants along with drags like fiscal strain, labor shortages and supply constraints--always with the dual mandate in focus. (See MNI POLICY: AI Buildout Emerges As Top Inflation Risk For Fed)

"The committee will assess the economy holistically and want to see AI-driven gains in the data before singling out AI effects in forecasts" he said.

So far, surveys show AI adding more to corporate costs than to productivity, and some analysts expect gains to accrue gradually. Warsh's external task force on productivity and jobs is set to hold a hearing next month.

The chairman appears attentive to real-time data and inputs from corporate executives, Lockhart noted.

Reliance on rear view mirror government data along with a reluctance to act on a single month’s reading--which Lockhart called the right approach--can leave the committee unavoidably behind the curve in some instances, he said. Getting high-value information closer to the moment of decision-making, from private-sector data or improvements to government data, would be helpful, he said.

"When you add it all up, it's still not a perfect snapshot of the economy at any given time, nor is it necessarily reliably predictive. That's just the nature of the uncertainty cloud that policymakers have to operate in. But improvements can be made."

MNI INTERVIEW: China Panda, Dim Sum Bond Boom To Continue - Ma

China's Panda and offshore renminbi bond markets, which saw issuance surge 68% and 46% year-on-year in the first half of 2026, are likely to sustain rapid growth for several years, driven by lower Chinese borrowing costs and growing interest from overseas issuers, a government advisor told MNI.

The nearly 300 basis points interest-rate differential between China and the U.S. remains the strongest incentive for foreign borrowers to tap renminbi-denominated debt markets, Ma Jun, chair of the Green Finance Committee (GFC) of the China Society for Finance and Banking, told MNI on the sidelines of the Financial Street Forum in Beijing. "I think it will continue, not just in the short term, but in the medium term as well," said Ma, former chief economist at the People's Bank of China, adding that the recent strong growth could be sustained "for quite a few years."

MNI reported recently that Brazil is about to take another step towards its first issuance of Panda bonds – renminbi-denominated debt issued by foreign entities in mainland China – before the end of the year. (See MNI EM POLICY: Brazil's China Rating To Pave Way For Panda Bonds). Dim Sum bonds are issued in the offshore renminbi market, predominantly in Hong Kong.

Beyond the cyclical interest-rate advantage, Ma said that the increase in promotion of the two markets was attracting prospective borrowers that had previously been unaware of the financing options available in China and Hong Kong. Recent conversations with banks across Central Asia showed a general lack of knowledge about Panda bonds, he said, noting the region represented substantial untapped potential, particularly in emerging markets.

Further simplification of issuance procedures and lower costs for obtaining green or sustainability labels could also support market growth, he continued, adding standardisation across jurisdictions would help reduce the complexity and expense of issuing bonds.

Offshore renminbi bond issuance reached approximately CNY820 billion (USD115 billion) by mid-to-late June 2026, up 46.8% from a year earlier, according to S&P Global. The outstanding market was estimated at between CNY2 trillion and CNY2.3 trillion. Meanwhile, Panda bond issuance in mainland China jumped 68% year-on-year to around CNY160 billion in the first half of 2026, according to S&P Global, with outstanding bonds exceeding CNY500 billion for the first time in July.

MULTILATERAL BANKS

Ma also expects multilateral development banks to play a greater role in helping developing-country borrowers access China's domestic bond market, where investors generally favour highly rated securities.

He drew a distinction between the two renminbi bond markets, noting offshore Dim Sum investors have a broader range of risk appetites, reducing the need for credit guarantees. By contrast, mainland Panda bond investors typically seek highly rated issuers, making credit enhancement important for developing-country borrowers with weaker credit profiles.

"That's why the guarantee is becoming important for some of the developing countries," he added. Ma cited recent guarantees involving the Asian Infrastructure Investment Bank and Asian Development Bank in connection with Pakistan's Panda bond issuance as examples of how multilateral lenders could help emerging-market borrowers access renminbi financing. Ma expects more such transactions and potentially broader participation from other multilateral development banks, including the New Development Bank.

MNI INTERVIEW: ABS Sees Weaker Labour Data Following Update

Australia’s labour market is showing clear signs of loosening despite some additional uncertainty in the February and August data following changes to the Australian Bureau of Statistics’ collection methodology, an ABS official told MNI.

The unemployment rate rose 10 basis points to 4.7% in September, while other indicators point to jobseekers taking longer to find work, said Sean Crick, head of labour statistics at the ABS. 

"We ask some questions about how long someone has been unemployed for, or how long they've been looking for, and we're seeing more people in that one-to-12 month time frame rather than the one-month time frame, which indicates a bit of labour market softening,” Crick added.

The ABS is also seeing people remain unemployed for longer, while the participation rate edged lower in September, he added. These developments reinforced the broader picture of a softening labour market, which the Bureau’s methodological changes would not materially alter, he noted.

While he admitted the Bureau's recent labour data collection upgrades injected extra noise, particularly into the August results that had continued into September, this did not detract from the broader message coming through the numbers, he argued. (See MNI INTERVIEW: RBA Hike Risk Remains, Despite Jobs Data)

DATA UPGRADES

The ABS began modernising its Labour Force Survey in April, completing the changes in August. The upgrades allow respondents to complete the survey on mobile phones, improve the security and efficiency of the underlying infrastructure, and streamline questions on supplementary topics such as employment characteristics, casual work experience and barriers to employment.

The changes form part of an ongoing effort to ensure the survey, which has been running since 1960, reflects the modern labour market and how people interact with government services.

Crick noted the main effect on the seasonally-adjusted data is confined to February and August, when the old model included additional questions on supplementary topics. The ABS found these questions could influence how respondents answered the survey as a whole, potentially affecting whether they were classified as employed or unemployed.

Under the previous methodology, the Bureau adjusted for these effects before applying seasonal adjustments, Crick explained. "The new model no longer requires those adjustments, but removing them makes it harder to distinguish any residual seasonal patterns in February and August."

Crick said the resulting uncertainty was small and would not undermine the broader labour market signals. While the ABS could not quantify the additional variability precisely, it expected it to remain below the usual standard errors associated with its labour force estimates.

The Bureau flagged the potential for additional noise when it released the August data to ensure users understood the limitations, he said, but stressed that the changes would have little effect on the overall interpretation of labour market conditions, pointing to comments made this week by Deputy Governor Andrew Hauser on the softening labour market. 

MNI BOC WATCH: Macklem Hints At First Hike Since Mid-2023

Bank of Canada Governor Tiff Macklem is considering delivering the first interest rate increase in over three years, boosting market bets on a move this week with his concern that higher global energy prices are now a bigger threat to the 2% inflation target than sagging exports and investment.

Thirteen of 22 economists surveyed by MNI see a quarter-point rise in the 2.25% overnight lending rate at a decision due Wednesday at 9:45 EST. Before Macklem’s Oct. 17 comments from IMF meetings in Bangkok most economists saw the Bank on hold, even as the last decision mentioned stronger inflation risk.

The Governor referred to global instability including the continued Iran conflict, moving away from an earlier view he could look through a narrow one-off jump in energy prices. Macklem told MNI last month he faced tough choices in looking at prices versus signs of a rebound from U.S. tariffs, but in the end the inflation goal comes first. (MNI INTERVIEW: Macklem-BOC Faces Tough Calls Ahead On Rates)

Consumer prices advanced 3.1% in September, the fourth time in five months it was at the top of the Bank's 1% to 3% target band. While core measures remained near 2%, the Bank's quarterly business and consumer surveys published the same day as CPI showed a boost in long-term price expectations, eroding one of Macklem's prior arguments for patience.

CONSECUTIVE HIKE SIGNAL?

The decision may also return to statements Macklem gave earlier this year that consecutive hikes could be needed if price stability was threatened. Canada's policy rate is also half a point below what officials deem neutral and some investors forecast that two or three hikes are needed to show inflation-fighting credentials. 

An increase would be the Bank’s first since July 2023 when the policy rate went to 5%. Officials cut rates four times last year as U.S. tariffs were imposed. With the Federal Reserve and the ECB turning to, hikes the Bank's rate is now far below the federal funds rate of 3.75%-4%. That exposes a potential new source of inflation if Canada's dollar weakens and makes imports more expensive.

New inflation forecasts in the Bank's quarterly outlook will get a big upgrade, Macklem says, and the new view of price gains over the Bank’s two-year horizon will give investors clues on the policy path as well. In July, the Bank said inflation would be 2.2% this quarter and 2.1% in 2027. With the Bank focused on inflation persistence any changes to the 2028 forecast for 2% inflation could also offer guidance.

Resilient growth as the U.S. escalates the tariff war means Canada’s upside risks run beyond inflation. While GDP could slow to 1% annualized in the fourth quarter following another round of tariffs, the Bank's latest business survey indicated firms believe Donald Trump will soften his trade stance. 

NUDGE THE PATH

Fiscal policy is also taking a bigger role sustaining companies hurt by geopolitics, and Canada's status as an oil and gas exporter provides another lift. Mark Carney's budget due Nov. 5 is on track for major deficit spending on the military, infrastructure and subsidies for makers of steel, aluminum and autos.

Still, big bets on what officials will do in tricky moments have been a set-up for disappointment, and meeting minutes have shown Governing Council members at times have been divided on the inflation path. The Bank's decisions also bucked market consensus five times in 2022 and 2023 coming out of the pandemic. 

“The question we're going to be asking ourselves is: is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path, nudge the path for inflation back towards the target?” Macklem told reporters from IMF meetings in Bangkok.

MNI INTERVIEW: Belgian Debt Chief- Budget Boost, No QT Change

Belgium's fiscal consolidation is likely to be agreed next week and should lower the country's yields and improve its ratings outlook, the debt agency head told MNI, adding that he does not expect the European Central Bank to pause quantitative tightening because of surging sovereign yields.

Although Belgium's government failed to agree on a draft budget including a EUR10 billion consolidation package earlier this month, Jean Deboutte said "we expect them to take decisions and to have an adjustment there in the budgetary part by the end of next week."

"I wouldn't rule out that we would have quite quick effects on the spreads," he said in an interview, because "we can gain easily a number of basis points, just by showing if something will be submitted to the EC."

"Rating agencies, for instance, now incorporate the vision that the deficit will remain above 5% [of GDP]. So it's up to us now to positively surprise the market and also surprise the rating agencies by showing something," he said.

"Even on unchanged [fiscal] policy, we don't really expect an increase in our funding needs ... and also on unchanged policy, our deficit will not really rise that much.”

If a budget is not presented by next week, "it will be difficult to vote for it before the end of the year in terms of national procedures, and this is also a little bit negative. So I think that everybody knows that."

ECB QT

Deboutte said the idea that the ECB could pause quantitative tightening to help member states is a "little bit bizarre," and "I don't think we will take it into account in our decisions. That would be a little bit too optimistic."

"I would be surprised if they already would take action now for it at this moment. I think that's too early for that," he said. (See MNI INTERVIEW: ECB Should Halt QT - Bini Smaghi)

Pressure on yields comes as "the demand for capital is huge" across the world, he said. "There's the ongoing need for capital with quite astronomical figures last couple of days again from the U.S. to AI," he said, pointing also to the U.S. budget deficit.

"There’s more attention to every country's budgetary initiatives than otherwise," he said, adding that "Italy, Belgium, and to a lesser extent Spain maybe are feeling the heat as well." (See MNI INTERVIEW: Belgian Yields Rise As Market Awaits ECB Hike)

LONG END UNDER PRESSURE

Lower demand for credit is particularly visible at the long end, he said.

"It's also general for the euro area; investors are no more interested in 30-year [bonds], maybe Spanish bonds or Italian bonds. I think there's a general weakness."

Dutch pension reforms to enable higher-risk investing are also having an impact. "It's evident that pension funds in the Netherlands also play a big role there, and that we see continuous selling of long-dated positions, maybe not even thirty-year, but even lower maturities, and so that's of course not very helpful as well."

"Dealers say there's not enough demand anyway, so we don't even have to think about the price for us to issue" ahead of the Dec 4 publication of Belgium's funding plan, he said. 

"We did not yet decide fully about next year's plan ... in the meantime we don't see much demand for anything longer than 20 years.”

Deboutte doesn't "see a future where we give up on 30-year [bond] forever. Thirty-year bonds will be there, maybe next year, if it's not next year, maybe the year after, or the year thereafter. I think countries with a debt like Belgium, they need a 30-year point which is liquid." 

The 4.35% coupon rate carried by the new January 2056 OLO launched in February appears modest in retrospect, he said.

"We're very pleased with the strategy that we have been following ... We were right, even if we don't always know what the future will do." (See MNI INTERVIEW: Problem If Belgian 30-Year Hits 4.5%-Debt Chief)

MNI POLICY: EU Aims To Extend China Hybrids Deal To Chemicals

The European Commission is planning to replicate its agreement with Beijing to limit imports of hybrid vehicles in other major industrial sectors under pressure from surging Chinese imports, including chemicals, MNI understands.

Trade Commissioner Maros Sefcovic has already referred to the hybrid deal, under which China has agreed to significantly limit vehicle exports to the European Union,  as "proof of concept.”

Other sectors now in Brussels’ sights include chemicals, which faces existential level challenges from Chinese imports and whose problems have been key to making Germany take a more hawkish line on the China threat. 

The Commission has been encouraged by the show of unity among leaders at last week's EU summit to maintain its current carrot-and-stick strategy which emphasises the need for trade negotiations to achieve tangible results while at the same time being ready to deploy credible trade weapons if talks fail. 

MNI understands that the Commission could present proposals for a new diversification tool and broader safeguarding protections as early as Dec 9, ahead of the end-of-year summit, at which leaders are expected to discuss new trade weapons.  (See MNI: EU Aims To Reduce China-Dependence, Avoid Trade War)

HIGH STAKES

Officials are aware that the dual-track approach is a high-stakes one and runs a significant risk of retaliation, not just from China, but also from the administration of U.S. President Donald Trump as midterm elections loom. A recent non-paper on EU trade defence from France and Germany conceded the danger of retaliation and proposed an "inventory of retaliation measures" which could be coordinated at leader level. More detail is also expected on this proposal from the Commission in December. (See MNI INTERVIEW: EU Still Undecided On Tough Action Over China)

Brussels is also understood to be nervous of imminent announcements of trade actions in the ongoing U.S. Section 301 trade investigations into EU digital policies and excess industrial capacities.  

The next phase of EU-China trade talks are expected to start in January and culminate in March with a meeting between Sefcovic and counterpart Commerce Secretary Wang Wentao in Brussels. 

MNI POLICY: EU Aims To Extend China Hybrids Deal To Chemicals

The European Commission is planning to replicate its agreement with Beijing to limit imports of hybrid vehicles in other major industrial sectors under pressure from surging Chinese imports, including chemicals, MNI understands.

Trade Commissioner Maros Sefcovic has already referred to the hybrid deal, under which China has agreed to significantly limit vehicle exports to the European Union,  as "proof of concept.”

Other sectors now in Brussels’ sights include chemicals, which faces existential level challenges from Chinese imports and whose problems have been key to making Germany take a more hawkish line on the China threat. 

The Commission has been encouraged by the show of unity among leaders at last week's EU summit to maintain its current carrot-and-stick strategy which emphasises the need for trade negotiations to achieve tangible results while at the same time being ready to deploy credible trade weapons if talks fail. 

MNI understands that the Commission could present proposals for a new diversification tool and broader safeguarding protections as early as Dec 9, ahead of the end-of-year summit, at which leaders are expected to discuss new trade weapons.  (See MNI: EU Aims To Reduce China-Dependence, Avoid Trade War)

HIGH STAKES

Officials are aware that the dual-track approach is a high-stakes one and runs a significant risk of retaliation, not just from China, but also from the administration of U.S. President Donald Trump as midterm elections loom. A recent non-paper on EU trade defence from France and Germany conceded the danger of retaliation and proposed an "inventory of retaliation measures" which could be coordinated at leader level. More detail is also expected on this proposal from the Commission in December. (See MNI INTERVIEW: EU Still Undecided On Tough Action Over China)

Brussels is also understood to be nervous of imminent announcements of trade actions in the ongoing U.S. Section 301 trade investigations into EU digital policies and excess industrial capacities.  

The next phase of EU-China trade talks are expected to start in January and culminate in March with a meeting between Sefcovic and counterpart Commerce Secretary Wang Wentao in Brussels.