Following Wednesday's stronger-than-expected U.S. CPI data, two Federal Reserve officials delivered hawkish signals on Thursday, indicating deepening concerns about inflation.

San Francisco Fed President Mary Daly said her view on inflation persistence has fundamentally shifted compared to six months ago, and she now sees inflation risks as "skewed entirely to the upside."

Cleveland Fed President Beth Hammack warned that if public inflation expectations deteriorate significantly, the Fed may need to take more aggressive rate hike actions.

These remarks came after this week's inflation data exceeded expectations. Following the data release, some market participants have raised the probability of a Fed rate hike at the October 27-28 policy meeting.

Daly's Shift: Supply Shocks Should No Longer Be Met With "Wait and See"

Mary Daly said on a Hoover Institution podcast that she has abandoned her previous "wait and see" approach to supply-side shocks. Six months ago, she leaned toward following central bank convention, believing that inflation driven by supply-side factors would dissipate on its own and that monetary policy tools had limited effect on it.

However, the overlapping and prolonged nature of multiple supply shocks changed her judgment. "When shocks overlap and persist for an extended period, does the traditional playbook still apply?" she said. "At what point does a factor that was originally a one-time event begin to erode inflation expectations against a backdrop of persistently elevated inflation?"

Daly noted that before the September policy meeting, she had begun to notice troubling changes in market-based long-term inflation expectation indicators. "The compensation investors demand for inflation risk has risen, climbing steadily since the July meeting, which to me is a warning early signal."

She also mentioned that businesses in the San Francisco Fed district are increasingly inclined to pass on cost increases to consumers, a typical sign of inflation pressure spreading from the input side to the end-user side.

Hammack Warns: Anchored Inflation Expectations Will Force More Aggressive Rate Hikes

According to Reuters, Beth Hammack said at an event hosted by Goldman Sachs in New York that once the public develops a "inflation mindset," the difficulty of monetary policy control will rise substantially, and the rate hike magnitude required will exceed baseline scenarios.

"What I worry about is that if this inflation thinking spreads, if people broadly expect price pressures to become increasingly persistent, that will make the job of monetary policy much harder, and we may have to act more aggressively than we would without that mindset," Hammack said.

Hammack is a member of the Federal Open Market Committee (FOMC) and one of the earlier and more steadfast officials within the Fed supporting rate hikes to combat inflation. She did not provide clear guidance on the current monetary policy path this time, but her language is consistent with the generally hawkish tone of recent official statements.

She also noted that despite rising borrowing costs, investment in sectors such as technology is still proceeding at full speed, and current financial conditions are broadly neutral, with no obvious tightening effect felt. "I don't feel financial conditions are imposing any constraint at this point," Hammack said.

Hawkish Signals Intensify, Market Awaits Warsh Speech

Hammack's remarks were among the last public appearances by officials before the Fed's blackout period ahead of the October meeting.

The market is closely watching a speech planned by Fed Chairman Warsh on Thursday evening for further clues on the direction of monetary policy.

The Fed unanimously agreed to raise rates by 25 basis points at its September 16 meeting, and the dot plot of officials' rate projections shows most policymakers expect one more 25 basis point hike before the end of 2026.

This week's stronger-than-expected inflation data has led the market to reassess the probability of a rate hike at the month-end meeting. With multiple officials successively emphasizing inflation expectation risks and financial conditions not yet showing clear constraints, expectations for another rate hike this year are strengthening.