This is an excerpt from our most recent Economic Outlook report. To access the full PDF, please click here.

“Advance Q3 U.S. real GDP growth 3.4%. GDPNow for Q4? +3.5%.”

A confirmed ‘3-handle’ at this late stage, is an overheated U.S. economy.  Plain and simple.

Following from aggregate demand pressure, one would expect to see consumer price pressure. And that is exactly what we see. 

And the FOMC saw this rising CPI pressure too.

Read on:

I agree with influential Fed Governor Chris Waller here:

"Fed Governor Chris Waller (on Nov. 10th) warned ahead of the [OCT CPI] data that if core inflation did not cool, the central bank should consider raising rates by 0.5 percentage points next month [DEC], advocating the first such ‘jumbo’ increase since 2022, ‘hiking only 25 bps would put our credibility at risk.’”

Want the collective view of CME Fed Funds traders?

On Nov. 11th, CME Fed Funds futures delivered a near certain 86.8% probability of a 25-bps hike at the Dec. 9th FOMC meeting. 

At least! And two 25-bps Fed Funds policy rate hikes should be taken seriously.

From there, CME Fed Funds traders expect hawkish FOMC action – for another half a year.

A June 9th, 2027 probability of 39.3%, for a Fed Funds policy rate between 4.50% to 4.75%, is the moment where two more 25-bps hikes become the dominant trader view.

In sum: As of Nov. 11th, one more 25-bps Fed Funds rate hike in DEC 2026 is the CME trader view. Then, another two FOMC 25-bps rate hikes, until roughly mid-year 2027.

This is what the NOV U. of Michigan Consumer Sentiment survey shared, on long-term entrenched consumer views about inflation, across the USA:

“Year-ahead inflation expectations declined from +4.7% last month to +4.3% this month. Although the current reading is the lowest since August, it remains substantially above the +3.4% seen in February before the Iran conflict began, along with all 2024 readings.”

“Long-run inflation expectations inched down from +3.5% in October to +3.4%, notably higher than their 2024 range of 2.8% to 3.2%.”

The FOMC mandate is for +2.0% expected core PCE. The SEP core PCE rate is +3.1%.

They must hike and hike hard to stop this. The “Taylor Rule Utility” at the least stringent is now 5.18% as of Nov. 11th. The other alternative was 5.19% and 6.39%.

That suggests five 25-bps hikes should have already been done, right now, as you read this. That is how far Fed Chair Kevin Warsh is behind, on the FOMC’s statutory stable price mandate.

At his October 28th press conference, Chair Warsh underscored the central bank's commitment, stating, "We will deliver price stability. No ifs, ands, or buts." 

On the Investing.com central bank dashboard table I shared? 8 of 11 major central banks have been hiking their monetary policy rates, in either September or October. 

In sum, we are now in a global monetary tightening cycle. 

I will finish the Conclusions sections, by reiterating my 3 key points from this month’s Econ Special:

1. Steady global demand for AI models, software, and data infrastructure has created an intense demand shock for critical hardware components – specifically, high-bandwidth memory (HBM) and advanced logic chips. 
2. A rapid, capital-intensive corporate pivot toward artificial intelligence has been heavily financed by a massive accumulation of corporate debt over recent years. 
3. However, as these financial obligations mature and economic pressures persist, cracks are beginning to show in the credit markets – evidenced by the sharp widening of high-yield and distressed credit spreads in late 2026.
4. Corporate borrowing costs have indeed spiked sharply, through late 2026. 

However, this tightening was driven by benchmark U.S. Treasury yields, rather than panicking credit markets.

Risk spreads for both general corporate indices and lower-tier investment-grade (IG) bonds remained structurally low and historically tight.