Wells Fargo economist Tom Porcelli says Fed rate hikes cannot fix supply-driven inflation
NEW YORK, Aug. 9. The Federal Reserve should hold its benchmark rate at 3.50% to 3.75% through 2026, Wells Fargo chief economist Tom Porcelli said, arguing that tariffs and energy costs are supply-side inflation drivers that rate hikes cannot address. The call puts him at odds with Wall Street banks and a derivatives market that has priced in multiple increases before year-end.
Key takeaways
- Wells Fargo chief economist Tom Porcelli said the Federal Reserve should hold its benchmark rate at 3.50% to 3.75% through 2026.
- Porcelli argues tariffs and energy costs are supply-side inflation drivers that Fed rate hikes cannot address.
- He cited core CPI running near 2.5%, and about 2.2% on a three-month annualized basis, as evidence inflation is close to the Fed's 2% target.
- His view is at odds with Wall Street banks and derivatives markets, with CME FedWatch showing December 2026 hike odds at 77.1%.
- Bank of America has forecast three hikes totaling 75 basis points, and three policymakers dissented in favor of an increase at the July FOMC meeting.
NEW YORK, Aug. 9. The Federal Reserve should hold its benchmark rate at 3.50% to 3.75% through 2026, Wells Fargo chief economist Tom Porcelli said, arguing that tariffs and energy costs are supply-side inflation drivers that rate hikes cannot address. The call puts him at odds with Wall Street banks and a derivatives market that has priced in multiple increases before year-end.
The argument for staying put
Porcelli made the case in an interview with CNBC, saying the Fed's rate tool cannot lower prices on goods affected by trade tariffs or ease supply constraints that drive energy costs. Rate increases in this environment, he argued, would weigh on growth without reaching the actual source of pressure. "Raising rates is not a costless endeavor," he said.
He cited core Consumer Price Index data as evidence the underlying trend is already close to the Fed's target. Core CPI runs near 2.5% and sits at approximately 2.2% on a three-month annualized basis, close to the central bank's 2% goal. Porcelli also noted a divergence between core CPI and core Personal Consumption Expenditures, attributing the gap to different index weightings rather than a meaningful difference in underlying price behavior.
How markets and Wall Street are positioned
The Fed has held its rate at 3.50% to 3.75% all year, but market pricing has moved in the opposite direction. On Polymarket, the odds of a 2026 hike peaked near 78% in late July before easing to near 55% this month. CME FedWatch data show a hold still leads at the September 16 Federal Open Market Committee meeting at 55.6%, but the probability of a hike climbs to 59.2% for October and 77.1% by December.
Bank of America has forecast three hikes totaling 75 basis points. Pacific Investment Management Company has warned that cuts would prove counterproductive. The Kansas City Federal Reserve's Jeffrey Schmid has also argued for higher rates, and three policymakers at the July FOMC meeting dissented in favor of an increase.
September 16 as the first test
The next FOMC decision lands September 16. With December hike odds at 77.1%, a sustained hold would require either an abrupt shift in incoming data or a Fed prepared to resist the internal pressure that already produced three dissents in July. Porcelli's case rests on core inflation running at 2.2% annualized, a pace he reads as leaving no argument for tightening against shocks the central bank cannot resolve.
Related reading
- Kevin Warsh holds firm on lean Fed messaging as markets push back
- KOSPI 200 futures fall 1.6% to 1,025.1 as rate-hike fears outweigh Nvidia gains
- SoFi Technologies shares fall 28% in 2026 as lending revenue takes a larger share of the mix
- Rocket Companies posts $766 million adjusted EBITDA in Q2 2026, most profitable quarter in four years