Key Takeaways
- • The Federal Reserve is widely expected to hold its benchmark rate at 3.75%-4.00% at the October 27-28 FOMC meeting, according to a Reuters survey of 100 economists conducted October 16-20, in which 94 respondents forecast a hold.
- • All surveyed respondents projected a December rate hike, a sharp shift from a month earlier when fewer than half expected a December increase.
- • Fed officials including Vice Chair Philip Jefferson and New York Fed President John Williams signaled no urgency for consecutive hikes, per KPMG's US branch analysis.
- • Pimco expects a 0.25 percentage point hike in December as the most likely next move, arguing that rising long-term Treasury yields are already tightening financial conditions.
- • BoA argued for an October hike, warning core PCE inflation could reach 3.4% year-on-year by year-end if energy price shocks spread to other items.
Summary
The US Federal Reserve is widely expected to hold its benchmark interest rate steady at the Federal Open Market Committee meeting on October 27-28, following a 0.25 percentage point increase in September that marked its first rate hike in three years and two months. Market attention has shifted from whether the Fed will pause to the pace of future increases and the ultimate terminal rate.
A Reuters survey of 100 economists conducted October 16-20 found that 94 respondents expected the benchmark rate to remain at the current 3.75%-4.00% range at this meeting. All respondents projected a December hike, a marked change from a month earlier, when less than half had anticipated a December increase.
The expectation of a hold reflects signals from senior Fed officials that further tightening is likely but not urgent. According to KPMG's US branch, Vice Chair Philip Jefferson and New York Fed President John Williams indicated that the case for consecutive hikes is not pressing. Governor Christopher Waller, a frequent advocate of additional hikes, said there is no need to raise rates at every meeting. KPMG summarized the debate as having "shifted from whether further tightening is needed to when it should occur."
Rising long-term Treasury yields are also cited as supporting a pause. Pimco economist Tiffany Wielding wrote that "higher long-term rates will increasingly weigh on growth over the coming quarters and reduce the risk of inflation becoming entrenched." Pimco expects the Fed to hold while preserving room for further hikes, with a 0.25 percentage point increase in December as the most likely next move.
Some analysts disagree. In a report dated October 19, BoA said inflation had worsened since the September meeting and that September's inflation data supports an October hike. It warned that if energy price shocks spread to other categories, year-on-year core PCE inflation could reach 3.4% by year-end. Because many Fed officials had anticipated two hikes within the year, BoA argued a October increase would leave room for another in December. Waller, in an October 8 speech, said new indicators support the view that the labor market is stable and prices are too high, adding that monetary policy will focus on inflation in the near term.
Investors will watch Chair Kevin Warsh's press conference for how he explains the hold and the conditions for further hikes. No new economic projections or dot plot will be released at this meeting. Pimco identified three points to monitor: how Warsh frames the hold, whether a majority of officials still see the September hike as a risk-management adjustment, and how many dissenting votes call for an immediate increase.
A Reuters survey of 100 economists conducted October 16-20 found that 94 respondents expected the benchmark rate to remain at the current 3.75%-4.00% range at this meeting. All respondents projected a December hike, a marked change from a month earlier, when less than half had anticipated a December increase.
The expectation of a hold reflects signals from senior Fed officials that further tightening is likely but not urgent. According to KPMG's US branch, Vice Chair Philip Jefferson and New York Fed President John Williams indicated that the case for consecutive hikes is not pressing. Governor Christopher Waller, a frequent advocate of additional hikes, said there is no need to raise rates at every meeting. KPMG summarized the debate as having "shifted from whether further tightening is needed to when it should occur."
Rising long-term Treasury yields are also cited as supporting a pause. Pimco economist Tiffany Wielding wrote that "higher long-term rates will increasingly weigh on growth over the coming quarters and reduce the risk of inflation becoming entrenched." Pimco expects the Fed to hold while preserving room for further hikes, with a 0.25 percentage point increase in December as the most likely next move.
Some analysts disagree. In a report dated October 19, BoA said inflation had worsened since the September meeting and that September's inflation data supports an October hike. It warned that if energy price shocks spread to other categories, year-on-year core PCE inflation could reach 3.4% by year-end. Because many Fed officials had anticipated two hikes within the year, BoA argued a October increase would leave room for another in December. Waller, in an October 8 speech, said new indicators support the view that the labor market is stable and prices are too high, adding that monetary policy will focus on inflation in the near term.
Investors will watch Chair Kevin Warsh's press conference for how he explains the hold and the conditions for further hikes. No new economic projections or dot plot will be released at this meeting. Pimco identified three points to monitor: how Warsh frames the hold, whether a majority of officials still see the September hike as a risk-management adjustment, and how many dissenting votes call for an immediate increase.
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