Federal Reserve seen holding rates in October, then hiking in December

Traders Union
All News
Economic Data
Fed seen holding rates in October

Highlights

94 of 100 economists in a Reuters poll expect the Fed to hold rates at 3.75%-4.00% in October, with all forecasting a December hike.
Nearly 60% of forecasters see the peak policy rate at 4.00%-4.25%, and 38 of 92 now predict at least two further increases.
Poll medians show the PCE Price Index staying over 100 basis points above the 2% target until at least 2028, driven by persistent inflation pressures.

Reuters poll points to delayed Fed move

As reported by Reuters, 94 of 100 economists in an October 16-20 survey expect the Fed to keep the federal funds rate in a 3.75%-4.00% range at its October 27-28 meeting, matching market pricing. All 100 respondents expect a rate increase in December, a sharp shift from last month, when fewer than half forecast such a move.

The Federal Open Market Committee unanimously raised rates by 25 basis points in September. Despite stronger-than-expected inflation data and a resilient economy, Fed officials have recently signaled they prefer a slower approach to further tightening.

Alex Pelle, senior U.S. economist at Mizuho Securities, said the central bank has little reason to delay if growth and inflation remain strong. He added that while a 25 basis point increase in December is the base case, the risk of a larger move is higher than the chance of no move at all.

Inflation and growth keep pressure on policy outlook

Bond markets have swung sharply as investors respond more to Fed messaging than to incoming economic data. Longer-dated Treasury yields climbed to multi-decade highs on October 7 before retreating by nearly 25 basis points as expectations for an October hike faded, while two-year Treasury yields have also moved sharply in both directions.

Nearly 60% of forecasters expect the policy rate to peak in a 4.00%-4.25% range, but 38 of 92 now predict at least two further increases, up from about one-fifth in the September poll. Michael Gapen, chief U.S. economist at Morgan Stanley, said risks still point toward a need for more tightening than currently expected.

Poll medians show the Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, staying more than 100 basis points above the 2% target over coming quarters and not returning to target until at least 2028. The outlook is being shaped by higher energy prices linked to President Donald Trump's war with Iran, new tariffs on imported goods, and an economy that is still expanding above the pace the Fed considers non-inflationary.

The economy grew at an annualized 2.2% pace in the second quarter and is forecast to have expanded 3.2% in the quarter just ended before slowing to 2.2% in October-December. Abigail Watt, U.S. economist at UBS, said resilience in growth is being supported in part by AI-led investment and stronger spending among higher-income households benefiting from equity market gains.

In our earlier article on long-term Treasury yields climbing above 5%, we explained how higher borrowing costs were feeding through to mortgage rates, tightening financial conditions, and worsening the outlook for the federal deficit as interest expenses rise. We also noted that heavy debt issuance, geopolitical tensions and surging capital demand—especially for AI infrastructure—were reinforcing upward pressure on yields, while political gridlock limited the prospects for near-term fiscal relief.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.