U.S. economic and inflation data challenge Walsh’s claim that the economy is "not yet overheated", as economists warn of risks of further interest rate hikes.

U.S. real GDP rose at an annualized quarterly rate of 3.4% in the third quarter, exceeding market expectations, with consumer spending and business equipment investment increasing by 3.8% and 20.9% respectively. The September PCE price index rose 3.6% year-on-year, up from August’s 3.4%. The robust growth and persistent inflation pose a challenge to Federal Reserve Chair Waller’s assessment that the economy is not overheating. This week, the Federal Reserve voted 10 to 2 to hold interest rates steady at 3.75% to 4%. Waller argued that technological advances like AI could boost productivity, so faster growth alone does not mean inflationary pressures are rising. As of Friday, market pricing indicated an approximately 80% chance of a 25-basis-point rate hike in December. KPMG chief economist Diane Swonk noted that inflation remains widespread, particularly concentrated in the services sector which is slower to respond to interest rate changes, and it’s unclear whether the modest cooling will ease its stickiness. She warned that tighter financial conditions stem in part from market expectations of future rate hikes, and actual policy action is still needed to address this. BNY Investments chief economist Vincent Reinhart projected that the Fed still needs two more rate hikes, and there is a risk of additional hikes amid elevated oil prices.