Following hawkish remarks by Federal Reserve Governor Christopher Waller at the Istanbul Turkish Central Bank Forum, Goldman Sachs chief economist Jan Hatzius stated that the Fed may opt for two additional rate hikes rather than just one in December.

Hatzius said in a report that two more hikes may be more appropriate, and the probability of only one hike in December has declined.

The analyst noted that Waller's remarks marked a shift from his previous emphasis on the three-month annualized core PCE inflation rate toward a hawkish stance, though Goldman Sachs still expects the Fed to raise rates by 25 basis points in December.

What did Waller say?

Waller's comments on Thursday suggested that further rate increases may be necessary to curb rising inflation and bring it back to the Fed's 2% target, adding that there is "flexibility" in the pace of hikes.

In his prepared remarks, Waller said: "If economic data continue to come in as expected, I anticipate further rate increases to support a more timely return of inflation to our 2% target."

"But there is some flexibility on when these hikes land. They need not occur at consecutive meetings, but should arrive within an acceptable timeframe."

These remarks came shortly after the release of the Federal Open Market Committee (FOMC) meeting minutes. The minutes showed that 19 Fed officials supported a rate hike in September.

In September, the Fed raised its benchmark rate by 25 basis points to a target range of 3.75%-4%, the first hike in about three years.

The dot plot projections indicated that most Fed officials expect an additional 25 basis point hike before the end of the year.

According to CME's FedWatch tool, the probability of a 25 basis point hike in October is 17.7%, while the probability of a cumulative increase of up to 50 basis points by December stands at 83.7%.

Multiple macro catalysts point to imminent rate hikes

Waller also emphasized that despite the energy price shock from the Iran war and rising debt expansion driven by the AI construction boom adding new concerns about inflation pressures, the case for rate hikes has become clearer as the economy strengthens.

Waller said: "There is evidence that economic activity is strengthening in the second half of this year, and I am not overly concerned that tightening monetary policy will trigger a destructive economic slowdown. But I am concerned that the recent acceleration in inflation...will lead consumers, investors, and pricing firms to raise their expectations for future inflation."

He noted that policymakers would signal the direction of interest rates, adding: "Such signaling helps anchor the near-term rate path while providing flexibility to adjust hikes based on newly released data."