Fed Seen Holding Rates in October, With Every Economist Polled Expecting a December Hike

The Federal Reserve will leave interest rates where they are this month and raise them in December. That is the near-unanimous view of economists polled by Reuters, and the agreement is unusually complete.

In the Reuters poll, taken from October 16 to October 20, 94 of 100 economists expect the Fed to hold the federal funds rate in its current range of 3.75 percent to 4.00 percent at the meeting on October 27 and 28. All 100 expect a rate increase in December. Last month, fewer than half of the economists polled expected a December move. The shift in one month is sharp.

The Federal Open Market Committee raised rates by 25 basis points in September, with all 12 voting members backing the move. Since then, inflation reports have come in hotter than expected, and Fed officials have signaled they prefer a slower, more deliberate path. Chair Kevin Warsh has made clear he is not keen on giving guidance, and he has kept quiet ahead of the October meeting. The meeting falls just days before the November midterm elections.

Economists say the Fed is falling behind

"You have a strong economy and you have inflation. There's really no reason for you to worry so much about getting interest rates higher, this is like the easiest choice," said Alex Pelle, a senior US economist at Mizuho Securities. He said the Fed is "just treading water and perhaps even getting a little behind." Pelle called holding in October the wrong call and said the Fed will raise by 25 basis points in December, with a greater risk it ends up going 50 than not going at all.

Michael Gapen, chief US economist at Morgan Stanley, said the risks point to the Fed having to raise rates more than markets now expect. Nearly 60 percent of the forecasters in the poll see the policy rate peaking in a range of 4.00 percent to 4.25 percent. The rest of those who answered that question, 38 of 92, predict at least two further increases, up from one fifth of respondents in the September survey.

Bond markets have already felt the swing

Longer-dated Treasury yields surged to multi-decade highs on October 7, as inflation data and near-term rate expectations pushed borrowing costs up, before retreating nearly 25 basis points as the chance of an October increase slipped away. Two-year Treasury yields, which track rate expectations most closely, have been whipsawed higher and then sharply lower.

Inflation has sat above the Fed's 2 percent target for nearly six years. The poll medians show the Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, staying more than 100 basis points above 2 percent over the coming quarters and not returning to target until at least 2028. September consumer inflation rose to 3.7 percent. Higher energy costs, driven by the war with Iran and by new tariffs on imported goods, have kept prices climbing, with oil holding above 100 dollars a barrel.

Growth is not giving the Fed a reason to ease off. The economy grew at an annualized pace of 2.2 percent in the second quarter, lifted in large part by AI-driven investment, and economists forecast growth of 3.2 percent in the quarter just ended, slowing to 2.2 percent in the final three months of the year. Abigail Watt, a US economist at UBS, said much of the resilience comes through the AI tech buildout and spending by upper-income groups who are benefiting from the equity market.

The final Fed meeting of 2026 is set for December 8 and 9, when the central bank will also publish updated economic projections. If the poll is right, that is when the next increase lands.