Deutsche Bank economist signals Fed’s shift to inflation target focus

Deutsche Bank is sounding the alarm on what it sees as a turning point in Federal Reserve policy. The bank’s economists believe the Fed is done waiting for inflation to cool on its own and is preparing to act, with rate hikes potentially on the table as early as September 2026. The core argument: inflation isn’t falling fast enough, and the Fed knows it. Deutsche Bank is forecasting a 25 basis point rate hike at the September 2026 meeting, followed by another in December, with a cumulative 75 basis points of tightening expected over roughly seven months. The numbers behind the concern August’s economic data gave inflation hawks plenty to work with. Core CPI came in at 0.29% month-over-month, meaningfully above what markets had anticipated. Deutsche Bank strategist Henry Allen pointed to what he called a “fundamental dislocation” between what markets expect and the stubborn reality of services inflation. Fed Chair Kevin Warsh, who took office in May 2026, has been unambiguous about where the central bank stands. He described the 2% inflation target as “firm and fixed” and acknowledged that inflation simply isn’t slowing in a meaningful way. Markets are listening. As of mid-September...